Not sure how to figure out the slope and y-intercept Consider a hypothetical closed economy in which households spend $0.70 of each additional dollarthey earn and save the remaining $0.30.The marginal propensity to consume (MPC) for this economy is 0.7this economy is 3.3333 YSuppose the government in this economy decides to decrease government purchases by $300billion. The decrease in government purchases will lead to a decrease in income, generating anThis decreases income yet again,initial change in consumption equal to -$210 billioncausing a second change in consumption equal to -$147 billionresulting from the initial change in government spending is -$1 trillion.The total change in demandThe following graph shows the aggregate demand curve (AD1 ) for this economy before the changein government spending.On the following graph, use the green line (triangle symbol) to plot the new aggregate demandcurve (AD2) after the multiplier effect takes place. For simplicity, assume that there is no"crowding out."Hint: Be sure that the new aggregate demand curve (AD2) is parallel to the initial aggregatedemand curve (AD1). You can see the slope of AD1 by selecting it on the graph.PRICE LEVEL1401351301201151101000ADand the multiplier for"12345REAL GDP (Trillions of dollars)-A-AD₂

From the given information, when government spending is decreased by $300 billion then demand is…

The following graph shows the aggregate demand curve (AD1 ) for this economy before the change in government spending. On the following graph, use the green line (triangle symbol) to plot the new aggregate demand curve (AD2) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out." Hint: Be sure that the new aggregate demand curve (AD2) is parallel to the initial aggregate demand curve (AD1 ). You can see the slope of ADI by selecting it on the graph. PRICE LEVEL 140 135 130 125 120 115 110 105 100 AD 6 2 3 REAL GDP (Trillions of dollars) AD2

The following graph shows the aggregate demand curve (AD1 ) for this economy before the change in government spending. On the following graph, use the green line (triangle symbol) to plot the new aggregate demand curve (AD2) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out." Hint: Be sure that the new aggregate demand curve (AD2) is parallel to the initial aggregate demand curve (AD1 ). You can see the slope of ADI by selecting it on the graph. PRICE LEVEL 140 135 130 125 120 115 110 105 100 AD 6 2 3 REAL GDP (Trillions of dollars) AD2

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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