Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1AD1). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph The following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $60 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. Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to (rise/fall) by $________ billion. Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to (increase/decrease) by $_______ billion_ at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the (automatic stabilizer/liquidity preference/multiplier/crowdingout) effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3AD3) 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 (AD3AD3) is parallel to AD1AD1 and AD2AD2. You can see the slopes of AD1AD1 and AD2AD2 by selecting them on the graph

Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1AD1). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph The following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $60 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. Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to (rise/fall) by $__ billion. Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to (increase/decrease) by $_ billion_ at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the (automatic stabilizer/liquidity preference/multiplier/crowdingout) effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3AD3) 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 (AD3AD3) is parallel to AD1AD1 and AD2AD2. You can see the slopes of AD1AD1 and AD2AD2 by selecting them on the graph

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose now that the government increases its purchases by $3.5 billion.

Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place.

Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph

The following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $60 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.

Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to (rise/fall) by $________ billion.

Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to (increase/decrease) by $_______ billion_ at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the (automatic stabilizer/liquidity preference/multiplier/crowdingout) effect.

Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3AD3) 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 (AD3AD3) is parallel to AD1AD1 and AD2AD2. You can see the slopes of AD1AD1 and AD2AD2 by selecting them on the graph.

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.
PRICE LEVEL
116
114
112
110
108
106
104
102
100
100
AD 1
102
106
108
110
OUTPUT (Billions of dollars)
104
112
114
116
AD2
AD 3
(?)

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