Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.INTEREST RATE1210820020Money Supplyknown as theMoney Demand406080MONEY (Billions of dollars)100120=Money DemandMoney Supply?Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on thechanges made to the money market in the previous scenario, the new interest rate causes the level of investment spending tobyTaking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded tobyat every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending iseffect.Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting forthe impact of the increase in government purchases on the interest rate and the level of investment spending.Hint: Be sure your final aggregate demand curve (AD3) is parallel to AD₁ and AD₂. You can see the slopes of AD₁ and AD₂ by selecting them on the 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 leftover. The following graph plots the economy's initial aggregate demand curve (AD₁).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 (AD₂) after the multiplier effect takes place.Hint: Be sure the new aggregate demand curve (AD₂) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following graph.PRICE LEVEL116114112110108106104102100100AD1102104106108110OUTPUT (Billions of dollars)112114116AD 2AD 3?

John Maynard Keynes devised the AD-AS model to explain changes in the economy's production and price…

Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. (? 12 10 2 0 20 Money Supply known as the Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 Money Demand Money Supply Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by ✓at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD) after accounting for the impact of the increase in government purchases on the interest rate and the level of investment spending. Hint: Be sure your final aggregate demand curve (AD) is parallel to AD, and AD₂. You can see the slopes of AD, and AD₂ by selecting them on the

Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. (? 12 10 2 0 20 Money Supply known as the Money Demand 40 60 80 MONEY (Billions of dollars) 100 120 Money Demand Money Supply Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to by Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to by ✓at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD) after accounting for the impact of the increase in government purchases on the interest rate and the level of investment spending. Hint: Be sure your final aggregate demand curve (AD) is parallel to AD, and AD₂. You can see the slopes of AD, and AD₂ by selecting them on the

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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In 2009, the U.S. economy was in a severe recession. The Federal Reserve had lowered the federal funds rate to about 0 percent, but still wanted to stimulate the economy more. The inflation rate in 2009 was about –1%, but households’ and businesses’ inflation expectations for the upcoming year were higher and positive, about 1.5%. a)First, do households’ and businesses’ investment demand depend on the ex ante or ex post real interest rate? Briefly explain why. b)Draw an IS-MP diagram that’s consistent with the state of the U.S. economy in 2009. Make sure that your IS and MP curves intersect in a place that is consistent with the setup of the problem, above. In particular, do your IS and MP curves intersect on the flat part of the MP curve, or the upward-sloping part? And do your IS and MP curves intersect at a positive real interest rate or a negative real interest rate? c)Suppose that the U.S. Congress and President pass a fiscal stimulus package that increases government spending.…
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Consider two interest rate levels, and is, and the corresponding total demand curves Z, and Z, in the usual graph. Hint: recall that the usual graph plots the demand curves with demand for goods on the vertical axis and production on the horizontal axis Question: if firms become more sensitive to interest rates in their investment decisions, then..... Select one: a Z, and Z₂ will shift but remain at the same distance. b. Z and Z₂ will shift down by the same amount c. Z and Z₂ will be further apart d.Z, and Z₂ will be nearer
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 The following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $60 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. Suppose that for every increase in the interest rate of one percentage point, the level of investment…
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
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 (AD1). Suppose now that the government increases its purchases by $3.5 billion. of Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (ADs) is parallel to ADj. You can see the slope of 4D, by selecting it on the following graph. Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $2 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to_____ Y by______ Taking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded…
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Demand for money is given by the following equation: Md = 0.3y – 8r. If the actual output is decreased by $200,000, then the demand curve for money will shift: and a) direction (to the right/left; b) amount
Only typed answer An economy is described by the following equations: C = 60 + 0.75 (Y – T) I p = 100 G = 150 NX = 30 T = 180 Y* = 760 By how much would government purchases have to change in order to eliminate any output gap?