Answer the given question with a proper explanation and step-by-step solution. Suppose there is some hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the $0.25 they have leftover. The following graph plots the economy's initial aggregate demand curve (AD₁).Suppose now that the government increases its purchases by $3.75 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 AD, by selecting it on the following graph.(?)RICE LEVEL116114112110108100104102100AD₁100INTEREST RATE15.012.510.0fall man inte antihrium in the money market at an interest rate of 7.5% and a quantity of money equal to $60 billion75The following graph plots equilibrium in the money market at an interest rate of 7.5% and a quantity of money equal to $60 billion.5.0105Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.(?)25115120125OUTPUT (Billions of dollars)0110013020135Money Supply140406080MONEY (Billions of dollars)Money DemandAD₂+AD₁100120-OMoney Demand1Money SupplySuppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on thechanges made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by 020406080MONEY (Billions of dollars)known as the100120Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on thechanges made to the money market in the previous scenario, the new interest rate causes the level of investment spending to byTaking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded tobyat every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending iseffect.Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD) 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 (AD) is parallel to AD, and AD₂. You can see the slopes of AD, and AD₂ by selecting them on thegraph.

Aggregate demand has four components. Consumption spending Investment Government purchases Net…

Suppose there is some hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the $0.25 they have left over. The following graph plots the economy's initial aggregate demand curve (AD₁). Suppose now that the government increases its purchases by $3.75 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 AD, by selecting it on the following graph.

Suppose there is some hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the $0.25 they have left over. The following graph plots the economy's initial aggregate demand curve (AD₁). Suppose now that the government increases its purchases by $3.75 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 AD, by selecting it on the following graph.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Answer the given question with a proper explanation and step-by-step solution.

Suppose there is some hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the $0.25 they have left
over. The following graph plots the economy's initial aggregate demand curve (AD₁).
Suppose now that the government increases its purchases by $3.75 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 AD, by selecting it on the following graph.
(?)
RICE LEVEL
116
114
112
110
108
100
104
102
100
AD₁
100
INTEREST RATE
15.0
12.5
10.0
fall man inte antihrium in the money market at an interest rate of 7.5% and a quantity of money equal to $60 billion
75
The following graph plots equilibrium in the money market at an interest rate of 7.5% and a quantity of money equal to $60 billion.
5.0
105
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.
(?)
25
115
120
125
OUTPUT (Billions of dollars)
0
110
0
130
20
135
Money Supply
140
40
60
80
MONEY (Billions of dollars)
Money Demand
AD₂
+
AD₁
100
120
-O
Money Demand
1
Money Supply
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 by

0
20
40
60
80
MONEY (Billions of dollars)
known as the
100
120
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 by
Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to
by
at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is
effect.
Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD) 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 (AD) is parallel to AD, and AD₂. You can see the slopes of AD, and AD₂ by selecting them on the
graph.

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