Homework (Ch 20)13012011010090PRICE LEBAD0100200 300 400 500 600OUTPUT (Billions of dollars)As the price level falls, the cost of borrowing money willcausing the quantity of output demanded toeffect.This phenomenon is known as theAdditionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar tomarkets. The number of domestic products purchased by foreigners (exports) will thereforeproducts purchased by domestic consumers and firms (imports) will. Net exports will thereforecausing the quantity of domestic output demanded to. This phenomenon is known as the700800in foreign exchangeand the number of foreigneffect.O The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of outputdemanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity ofoutput demanded rises to $500 billion.170AOPRICE LEVEL160150140120110100BADC

Aggregate demand is downward sloping showing inverse relationship between price and output.

The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. 170 A 160 150 140 PRICE LEVEL I I I B

The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. 170 A 160 150 140 PRICE LEVEL I I I B

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax cut has on the economy. (?) PRICE LEVEL 130 120 110 100 90 80 70 0 10 20 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand Suppose the governments of two very similar economies, economy B and economy A, implement a permanent tax cut of equal size. Investment spending in economy B is less sensitive to changes in the interest rate than investment spending in economy A. The economies are otherwise completely identical.
Identify and briefly discuss the three reasons the aggregate demand curve slopes downward. Are these reasons the same as the reasons that the demand curve for an individual product, such as bananas, slopes downward? Briefly explain.
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The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax hike has on the economy. Suppose the governments of two very similar economies, economy N and economy M, implement a tax cut of equal size. The tax cut in economy N is permanent, while the tax cut in economy M is temporary. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the (temporary tax cut/permanent tax cut) .
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3/25/22, 8:59 PM Assignment Print View 8. Assume the economy is currently in equilibrium at its full-employment level of output, the money market is in equilibrium, and the MPC = 0.75. a. Suppose there is an increase in government spending that causes aggregate demand to increase by $16 billion. Show the increase in aggregate demand on the graph. Instructions: Use the tool provided "Aggregate Demand" to plot the new aggregate demand curve. Use the tool provided "New GDP" to plot the new equilibrium. AD and AS Model 200 Tools LRAS 180 AS 160 Aggregate Dei New GDP 140 120 100 80 60 AD 40 20 16 32 48 64 80 96 112 128 144 160 Real GDP (billions of dollars) Now suppose the Federal Reserve wants to keep inflation from hurting the economy and maintain output at the full-employment level. https://ezto.mheducation.com/hm.tpx?todo=c15SinglePrintView&singleQuestionNo=8.&postSubmissionView=13252718377637707&wid=13252718466136846&rol... 1/3 Price Level
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Briefly explain how each of the following events would affect the aggregate demand curve a) an increase in the price level b) an increase in government purchases c) higher federal corporate income taxes