The marginal propensity to consume (MPC) for this economy is and the spending multiplier for this economy is Suppose the govemment in this economy decides to decrease govemment purchases by $250 bion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to second change in consumption equal to This decreases income yet again, causing a The total change in demand resulting from the initial change in government spending is The following greph shows the aggregate demand curve (AD, ) for this economy before the change in govemment spending. Use the green line (triangle symbel) to plot the new aggregate demand curve (AD) after the multiplier efect takes place. For smplioty, assume that there is no "crowding out." Hint Be sure that the new aggregate demand curve (AD)s parael to the initial aggregate demand curve (AD). You can see the slope of AD, by selecting t on the greph.

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Chapter1: Making Economics Decisions
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The marginal propensity to consume (MPC) for this econamy is . and the spending multiplier for this economy is
Suppose the govemment in this economy decides to decrease govemment purchases by $250 bilion. The decrease in government purchases will
lead to a decrease in income, generating an initial change in consumption equal to
second change in consumption equal to
This decreases income yet again, causing a
The total change in demand resulting from the initial change in government spending is
The following graph shows the aggregate demand curve (AD ) for this economy before the change in govemment spending.
Use the green line (trangie symbol) to plot the new aggregate demand curve (AD:) after the multiplier effect takes place. For simplioity, assume that
there is no "crowding out."
Hint: Be sure that the new aggregate demand curve (AD) is paralel to the initial aggregate demand curve (AD). You can see the slope of AD by
selecting t on the graph.
540
AD.
AD,
130
100
OUTPUT (Tions of doles)
PRICE LEVEL
S BEE
Transcribed Image Text:The marginal propensity to consume (MPC) for this econamy is . and the spending multiplier for this economy is Suppose the govemment in this economy decides to decrease govemment purchases by $250 bilion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to second change in consumption equal to This decreases income yet again, causing a The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate demand curve (AD ) for this economy before the change in govemment spending. Use the green line (trangie symbol) to plot the new aggregate demand curve (AD:) after the multiplier effect takes place. For simplioity, assume that there is no "crowding out." Hint: Be sure that the new aggregate demand curve (AD) is paralel to the initial aggregate demand curve (AD). You can see the slope of AD by selecting t on the graph. 540 AD. AD, 130 100 OUTPUT (Tions of doles) PRICE LEVEL S BEE
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