The following graph shows the aggregate demand curve ( AD1) for this economy before the change in government spending. 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 AD1 by selecting it on the graph. 140 AD, 135 AD, 130 125 120 115 110 105 100 3 4 OUTPUT (Trillions of dollars) PRICE LEVEL 4. The multiplier effect of a change in government purchases Consider a hypothetical closed economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. and the spending multiplier for this economy is The marginal propensity to consume (MPC) for this economy is Suppose the government in this economy decides to increase government purchases by $250 billion. The increase in government purchases will lead . This increases income yet again, causing a to an increase in income, generating an initial change in consumption equal to second change in consumption equal to The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate demand curve (AD1) for this economy before the change in government spending. 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 AD1 by selecting it on the graph.
The following graph shows the aggregate demand curve ( AD1) for this economy before the change in government spending. 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 AD1 by selecting it on the graph. 140 AD, 135 AD, 130 125 120 115 110 105 100 3 4 OUTPUT (Trillions of dollars) PRICE LEVEL 4. The multiplier effect of a change in government purchases Consider a hypothetical closed economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. and the spending multiplier for this economy is The marginal propensity to consume (MPC) for this economy is Suppose the government in this economy decides to increase government purchases by $250 billion. The increase in government purchases will lead . This increases income yet again, causing a to an increase in income, generating an initial change in consumption equal to second change in consumption equal to The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate demand curve (AD1) for this economy before the change in government spending. 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 AD1 by selecting it on the graph.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:The following graph shows the aggregate demand curve ( AD1) for this economy before the change in government spending.
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 AD1
by selecting it on the graph.
140
AD,
135
AD,
130
125
120
115
110
105
100
3
4
OUTPUT (Trillions of dollars)
PRICE LEVEL
Transcribed Image Text:4. The multiplier effect of a change in government purchases
Consider a hypothetical closed economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25.
and the spending multiplier for this economy is
The marginal propensity to consume (MPC) for this economy is
Suppose the government in this economy decides to increase government purchases by $250 billion. The increase in government purchases will lead
. This increases income yet again, causing a
to an increase in income, generating an initial change in consumption equal to
second change in consumption equal to
The total change in demand resulting from the initial change in government spending is
The following graph shows the aggregate demand curve (AD1) for this economy before the change in government spending.
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 AD1
by selecting it on the graph.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education