Money Market Equilibrium interest rate of 3% Graph & Fill in Blanks 1st Blank options are rise or fall 2nd Blank options are $0.25 billion, $0.5 billion, $1 billion 3rd Blank options are decrease or increase 4th Blank options are $0.5 billion, $1 billion, $0.4 billion 5th Blank Options are multiplier, crowding-out, automatic stabilizer, liquidity preference The following graph shows the money market in equilibrium at an interest rate of 3% and a quantity of money equal to $15 billion.Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.6Money Supply5Money DemandMoney Supply2Money Demand1015202530MONEY (Billions of dollars)Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $0.5 billion. The change in theinterest rate (according to the change you made to the money market in the previous scenario) therefore causes the level of investment spending tobyAfter the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded tobyat each price level. The impact of an increase in government purchases on the interest rate and the level of investment spending isknown as theeffect.Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting forthe impact of the increase in government purchases on the interest rate and the level of investment spending.Hint: Be sure your final aggregate demand curve (AD3 ) is parallel to AD1 and AD2. You can see the slopes of AD1 and AD2 by selecting them onthe graph.INTEREST RATE 5. Fiscal policy, the money market, and aggregate demandConsider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The followinggraph shows the economy's initial aggregate demand curve (AD1).Suppose the government increases its purchases by $2.5 billion.Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place.Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can see the slope of AD1 by selecting it on the following graph.116A114AD,112AD1110AD,108106104102100100102104106108110112114116OUTPUT (Billions of dollars)PRICE LEVEL

Given, MPC (marginal propensity to consume) = 0.5 MPS (marginal propensity to save) = 0.5

Answered: Suppose that for each…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Money Market Equilibrium interest rate of 3% Graph & Fill in Blanks

1st Blank options are rise or fall

2nd Blank options are $0.25 billion, $0.5 billion, $1 billion

3rd Blank options are decrease or increase

4th Blank options are $0.5 billion, $1 billion, $0.4 billion

5th Blank Options are multiplier, crowding-out, automatic stabilizer, liquidity preference

The following graph shows the money market in equilibrium at an interest rate of 3% and a quantity of money equal to $15 billion.
Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.
6
Money Supply
5
Money Demand
Money Supply
2
Money Demand
10
15
20
25
30
MONEY (Billions of dollars)
Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $0.5 billion. The change in the
interest rate (according to the change you made to the money market in the previous scenario) therefore causes the level of investment spending to
by
After the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded to
by
at each price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is
known as the
effect.
Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting for
the impact of the increase in government purchases on the interest rate and the level of investment spending.
Hint: Be sure your final aggregate demand curve (AD3 ) is parallel to AD1 and AD2. You can see the slopes of AD1 and AD2 by selecting them on
the graph.
INTEREST RATE

5. Fiscal policy, the money market, and aggregate demand
Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following
graph shows the economy's initial aggregate demand curve (AD1).
Suppose the government increases its purchases by $2.5 billion.
Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place.
Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can see the slope of AD1 by selecting it on the following graph.
116
A
114
AD,
112
AD1
110
AD,
108
106
104
102
100
100
102
104
106
108
110
112
114
116
OUTPUT (Billions of dollars)
PRICE LEVEL

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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