Consider a hypothetical economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The followinggraph shows the economy's initial aggregate demand curve (AD1).Suppose the government increases its purchases by $2 billion.After the multiplier effect, the increase in government purchases will cause the quantity of output demanded tobybillion at each price level.Place the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Besurenew aggregate demand curve (AD2) is parallel to AD1. Hover your mouse over the AD1 curve to see its slope.(?)116AD,112AD,108AD1104100100110120130140QUANTITY OF OUTPUT (Billions of dollars)PRICE LEVEL The following graph shows the loanable funds market in equilibrium at an interest rate of 3%.On the following graph, show the impact of the increase in government purchases on the interestrate by shifting one or both of the curves.SupplyDemandSupplyDemand1020QUANTITY OF LOANABLE FUNDS (BIllons of dollars)Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $1 billion.According to the change you made to the loanable funds market in the previous scenario, the increase in government purchases causes the interestrate in the money market to from 3% toThe change in the interest rate causes the level of investment spending to bybilion.After the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded tobybilion at each price level. The impact of an increase in government purchases on the interest rate and the level of investmentspending is known as theeffect.Place the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve AD, after accounting forthe impact of the increase in government purchases on the interest rate and the level of investment spending. Be sure your final aggregate demandcurve (AD,) is parallel to AD, and ADz. You can see the slopes of AD, and AD, by mousing over them on the graph.INTEREST RATE

Expenditure multiplier (M) is the ratio between the change in the real GDP & the change in the…

Consider a hypothetical economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The following graph shows the economy's initial aggregate demand curve (AD¡ ). Suppose the government increases its purchases by $2 billion. After the multiplier effect, the increase in government purchases will cause the quantity of output demanded to by billion at each price level. Place the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Be sure the new aggregate demand curve (AD2) is parallel to AD1. Hover your mouse over the AD1 curve to see its slope.

Consider a hypothetical economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The following graph shows the economy's initial aggregate demand curve (AD¡ ). Suppose the government increases its purchases by $2 billion. After the multiplier effect, the increase in government purchases will cause the quantity of output demanded to by billion at each price level. Place the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Be sure the new aggregate demand curve (AD2) is parallel to AD1. Hover your mouse over the AD1 curve to see its slope.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD1AD1). Suppose the government increases its purchases by $3 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.
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