The graph gives an economy's AE curve when the economy isin long-run equilibrium. Equilibrium expenditure is $12 trillion.Draw a new AE curve that shows the effect of an increase ininvestment. Label it AE₁.Draw a point at the new equilibrium expenditure.Label it B.Draw another AE curve that shows equilibrium expenditure inthe short run. Label it AE2.Draw a point at the short-run equilibrium. Label it C.Finally, draw the AE curve when the economy returns tolong-run equilibrium. Label it AE3.1614-12-10-10Aggregate expenditure (trillions of 2009 dollars)A45 degree line11121314Real GDP (trillions of 2009 dollars)Click the graph, choose a tool in the palette and follow the instructions to create your graph.15AE1617

Aggregate expenditure refers to the total amount of spending in an economy over a specific period,…

The graph gives an economy's AE curve when the economy is in long-run equilibrium. Equilibrium expenditure is $12 trillion. Draw a new AE curve that shows the effect of an increase in investment. Label it AE₁. Draw a point at the new equilibrium expenditure. Label it B. Draw another AE curve that shows equilibrium expenditure in the short run. Label it AE₂. Draw a point at the short-run equilibrium. Label it C. Finally, draw the AE curve when the economy returns to long-run equilibrium. Label it AE. 16 14- 12- 10-k 10 Aggregate expenditure (trillions of 2009 dollars) 45 degree line 11 15 12 13 14 Real GDP (trillions of 2009 dollars) AE 16

The graph gives an economy's AE curve when the economy is in long-run equilibrium. Equilibrium expenditure is $12 trillion. Draw a new AE curve that shows the effect of an increase in investment. Label it AE₁. Draw a point at the new equilibrium expenditure. Label it B. Draw another AE curve that shows equilibrium expenditure in the short run. Label it AE₂. Draw a point at the short-run equilibrium. Label it C. Finally, draw the AE curve when the economy returns to long-run equilibrium. Label it AE. 16 14- 12- 10-k 10 Aggregate expenditure (trillions of 2009 dollars) 45 degree line 11 15 12 13 14 Real GDP (trillions of 2009 dollars) AE 16

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Explain the concept of the spending multiplier.
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Right click on image and click on open image in new tab to see the full and clear image. Consider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is currently in equilibrium with real GDP and total expenditure equal to $100 billion, as shown by the black points on the following two graphs. Neither economy has taxes that change with income. The grey lines show the 45-degree line on each graph. The first economy's MPC is 0.5. Therefore, its initial total expenditure line has a slope of 0.5 and passes through the point (100, 100). The second economy's MPC is 0.75. Therefore, its initial total expenditure line has a slope of 0.75 and passes through the point (100, 100). Now, suppose there is a decrease of $20 billion in investment in each economy. Place a green line (triangle symbol) on each of the previous graphs to indicate the new total expenditure line for each economy. Then place a black point (plus symbol) on each graph…
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