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 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 known as the____ effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) 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 (ADs) is parallel to AD and AD. You can see the slopes

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter20: Monetary Policy

Section: Chapter Questions

Problem 4SQP

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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 (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 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 known as the______ effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) 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 (ADs) is parallel to AD and AD. You can see the slopes

CENGAGE MINDTAP
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PRICE LEVEL
116
114
112
110
108
106 +
104
102
100
100
www
AD.
102
104
106
108
110
OUTPUT (Billions of dollars)
112 114 116
-
AD₂
AD3
The following graph plots equilibrium in the money market at an interest rate of 3% and a quantity of money equal to $30 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.
D
0
M
Q Searc
US
May

INTEREST RATE
сл
N
0
0
10
Money Supply
Money Demand
20
30
40
MONEY (Billions of dollars)
50
60
Money Demand
Money Supply
Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by s
M

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