4 1. Suppose that the US economy is currently at full employment (Real GDP = Potential Real GDP= $15 billion per week), the price level is 100, and the Aggregate Expenditure curve is given by10 +Y. (Please use the two graphs on the last page.)AE =A. Draw the Aggregate Expenditure curve on the top graph, and the Long Run Aggregate Supplycurve on the bottom graph.B. Suppose that, due to investors fearing a recession (animal spirits), Investment drops by $4billion per week. Show how this change would affect the AE curve on the top graph, and the ADcurve on the bottom graph. (Hint: By how much does "A" change? Does "B" change?) Whatwill RGDP be immediately after?C. Why did RGDP fall by more than $4 billion per week? Calculate the Keynesian Multiplier.D. What happens to the price level, RGDP, and employment in the Short Run? On the topgraph, show how the AE curve shifts, due to the change in prices. (Make sure that theintersection of the AE curve and AE=Y lines up with the new RGDP!)E. In the long run, how would the economy return to full employment without governmentintervention? On each graph, which curve shifts, and how so? Why doesn't this happen in theshort run?F. Returning to the situation in Part D, what policy (or policies) would a Keynesian economistsuggest in this situation? How does this get the economy back to full employment? AEAE = Y201510AGDP (Sbillions/week)101525PriceADSRASLevel11010090RGDP ($billions/week)5.10152020LOLO

Disclaimer :- as you posted multipart questions we are supposed to solve only the first 3 questions.…

1. Suppose that the US economy is currently at full employment (Real GDP = Potential Real GDP = $15 billion per week), the price level is 100, and the Aggregate Expenditure curve is given by AE = 10 +Y. (Please use the two graphs on the last page.) %3D A. Draw the Aggregate Expenditure curve on the top graph, and the Long Run Aggregate Supply curve on the bottom graph. B. Suppose that, due to investors fearing a recession (animal spirits), Investment drops by $4 billion per week. Show how this change would affect the AE curve on the top graph, and the AD curve on the bottom graph. (Hint: By how much does "A" change? Does "B" change?) What will RGDP be immediately after? C. Why did RGDP fall by more than $4 billion per week? Calculate the Keynesian Multiplier.

1. Suppose that the US economy is currently at full employment (Real GDP = Potential Real GDP = $15 billion per week), the price level is 100, and the Aggregate Expenditure curve is given by AE = 10 +Y. (Please use the two graphs on the last page.) %3D A. Draw the Aggregate Expenditure curve on the top graph, and the Long Run Aggregate Supply curve on the bottom graph. B. Suppose that, due to investors fearing a recession (animal spirits), Investment drops by $4 billion per week. Show how this change would affect the AE curve on the top graph, and the AD curve on the bottom graph. (Hint: By how much does "A" change? Does "B" change?) What will RGDP be immediately after? C. Why did RGDP fall by more than $4 billion per week? Calculate the Keynesian Multiplier.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Aggregate Demand

Section: Chapter Questions

Problem 6.13P

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Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1AD1). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2AD2) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph. AD2AD3100102104106108110112114116116114112110108106104102100PRICE LEVELOUTPUT (Billions of dollars)AD1
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