### Understanding Aggregate Demand in a Hypothetical Economy**Concept Overview:**Consider a hypothetical economy where households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The initial aggregate demand curve (AD₁) for this economy is depicted in the following graph.**Government Purchase Impact:**Suppose the government increases its purchases by $3.75 billion. **Exercise:**Using the green line (triangle symbol) on the provided graph, indicate the new aggregate demand curve (AD₂) after the multiplier effect takes place.**Hint:** Ensure the new aggregate demand curve (AD₂) is parallel to AD₁. You can determine the slope of AD₁ by examining the following graph.### Graph ExplanationThe graph provided shows the initial aggregate demand curve (AD₁) for a hypothetical economy:- **Y-Axis (Vertical):** Represents the price level, ranging from 100 to 116.- **X-Axis (Horizontal):** Represents the Real GDP or Output, ranging from 100 to 140.The initial aggregate demand curve (AD₁) starts at a price level of approximately 112 and a GDP value of 110, and ends at a price level of 100 and a GDP value of 130, illustrating a downward-sloping demand curve.On the right side of the graph, there are symbols for different demand curves:- A green triangle represents AD₂.- A purple diamond represents AD₃.**Instructions for Students:**Use the green line (triangle symbol) to draw the second aggregate demand curve (AD₂) parallel to the initial aggregate demand curve (AD₁). Please ensure the new curve correctly reflects the effect of the government's increased purchases, maintaining the same slope as AD₁.Understanding the changes in aggregate demand due to external factors like government spending will help in analyzing real-world economic scenarios more effectively.

In macroeconomics, a multiplier is a component of proportionality that actions how much an…

symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes place. egate demand curve (AD₂) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. ? 14 AD₂ 115 120 125 130 135 140 } AD 3

symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes place. egate demand curve (AD₂) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph. ? 14 AD₂ 115 120 125 130 135 140 } AD 3

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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4. What do we mean when we talk about the export base of a region? How does an increase in the export base affect total employment? How does this relate to the multiplier? What factors limit the size of the multiplier within cities?
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Locate a news article that describes an event that would cause a shift in the Aggregate Demand (Aggregate Expenditure). Describe if the event would cause an “upward” or “downward” shift in the Aggregate Demand curve and why. Briefly explain how this then fits within the Consumption Function.
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Planned aggregate expenditure (PAE, billions of $) 1,400 1,200 1,000 800 600 400 200 0 Actual aggregate expenditure (Y, billions of dollars) Type your answers in all of the blanks and submit X₂ X² Ων 200 400 600 800 1,000 1,200 1,400 The following shows the PAE of an economy. Based on the graph, answer the following: 1. PAE equation is PAE = Type your answer here 2. The equilibrium level of output is $ Type your answer here Type your answer here 3. Suppose that planned investment increases by $200. The new PAE equation is PAE = + Type your answer here Y PAE 4. The new equilibrium level of output is $ Type your answer here 5. The multiplier is Type your answer here Y Type your answer here
2. From what was learned in class, explain what the values of the slope and vertical intercept of the aggregate consumption function mean from an economic perspective. Income-expenditure equilibrium Using the data in the following table to complete the following questions. GDP YD Planned (billions of dollars) $0 $0 $200 $100 400 400 500 100 800 800 800 100 1,200 1,200 1,100 100 1,600 1,600 1,400 100 2,000 2,000 1,700 100 2,500 2,500 2,000 100 3,000 3.000 2,300 100 1. Complete the columns for AEPlanned and unplanned in the table. 2. What is the value of the MPC? 3. What is the aggregate consumption function? AE Planned Unplanned 4. What is the equation for the planned aggregate expenditure function? 4. 5. What is the value of income-expenditure equilibrium GDP, (Y*)? 6. Explain in economic terms what happens when not in the income-expenditure equilibrium? Both when GDP > AE planned and GDP < AE planned. For each situation what needs to happen to move the economy toward equilibrium?.
Consider the following economy. What is the mpc in this economy? Planned Government Net Exports Aggregate Change in Real GDP (Y) Consumption (C) Investment (I') Purchases (G) (NX) Expenditures (AE) Inventories 10000 8200 800 11000 9000 600 12000 9800 13000 14000 15000 800 Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a 0.50 b 0.75 C 0.80 d 0.90
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 $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. 116 114 AD₂ 112 > 1:0 4/29/ PRICE LEVEL MEADCA 110 108 AD1 A AD 3 G O
7. Marginal propensity to import and net exports The following graph shows net exports for a hypothetical country. U 50 50 40 20 20 NET EXPORTS (Billions of dollars) 10 10 -10 20 -20 300 400 ⑦? 500 600 700 REAL GDP (Billions of dollars) 0 100 200 13 and According to the graph, when the country is producing a real GDP of $400 billion, exports are function is equal to the than imports. The slope of the net exports and thus tells you that for every $1 increase in real GDP, do not change (because they are assumed to be autonomous with respect to real GDP). by