Homework Help is Here – Start Your Trial Now!
Business
Economics
CENGAGE MINDTAP Homework (Ch 16) 4. The multiplier effect of a change in government purchases Suppose there is some hypothetical closed economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The marginal propensity to consume (MPC) for this economy is 0.8, and the spending multiplier for this economy is 5. Suppose the government in this economy decides to decrease government purchases by $300 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to -$240 billion This decreases income yet again, leading to a second change in consumption equal to $192 billion. The total change in demand resulting from the initial change in government spending is -$1.5 trillion The following graph shows the aggregate demand curve (AD₁) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve (AD₂) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out." Hint: Be sure that the new aggregate demand curve (AD2) is parallel to the initial aggregate demand curve (AD1). You can see the slope of AD₁ by selecting it on the graph. PRICE LEVEL 140 135 130 125 120 115 110 AD₁ AD₂ (?) Q Search this course >

CENGAGE MINDTAP Homework (Ch 16) 4. The multiplier effect of a change in government purchases Suppose there is some hypothetical closed economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The marginal propensity to consume (MPC) for this economy is 0.8, and the spending multiplier for this economy is 5. Suppose the government in this economy decides to decrease government purchases by $300 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to -$240 billion This decreases income yet again, leading to a second change in consumption equal to $192 billion. The total change in demand resulting from the initial change in government spending is -$1.5 trillion The following graph shows the aggregate demand curve (AD₁) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve (AD₂) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out." Hint: Be sure that the new aggregate demand curve (AD2) is parallel to the initial aggregate demand curve (AD1). You can see the slope of AD₁ by selecting it on the graph. PRICE LEVEL 140 135 130 125 120 115 110 AD₁ AD₂ (?) Q Search this course >

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
See similar textbooks
icon
Related questions
Question

Please answer the entire question

7:12 PM Fri May 19 < X B CENGAGE MINDTAP Homework (Ch 16) 4. The multiplier effect of a change in government purchases The marginal propensity to consume (MPC) for this economy is 0.8 Suppose there is some hypothetical closed economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. PRICE LEVEL 140 Suppose the government in this economy decides to decrease government purchases by $300 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to -$240 billion This decreases income yet again, leading to a second change in consumption equal to -$192 billion is -$1.5 trillion The total change in demand resulting from the initial change in government spending The following graph shows the aggregate demand curve (AD₁) for this economy before the change in government spending. 135 AA C MindTap - Cengage Learning 130 Use the green line (triangle symbol) to plot the new aggregate demand curve (AD2) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out." 125 Hint: Be sure that the new aggregate demand curve (AD2) is parallel to the initial aggregate demand curve (AD₁). You can see the slope of AD₁ by selecting it on the graph. 120 115 110 AD ●●● 1 ng.cengage.com and the spending multiplier for this economy is 5 b Home | bartleby AD 2 ? + Q Search this course i 97% × ? A-Z A+ bongo
Transcribed Image Text:7:12 PM Fri May 19 < X B CENGAGE MINDTAP Homework (Ch 16) 4. The multiplier effect of a change in government purchases The marginal propensity to consume (MPC) for this economy is 0.8 Suppose there is some hypothetical closed economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. PRICE LEVEL 140 Suppose the government in this economy decides to decrease government purchases by $300 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to -$240 billion This decreases income yet again, leading to a second change in consumption equal to -$192 billion is -$1.5 trillion The total change in demand resulting from the initial change in government spending The following graph shows the aggregate demand curve (AD₁) for this economy before the change in government spending. 135 AA C MindTap - Cengage Learning 130 Use the green line (triangle symbol) to plot the new aggregate demand curve (AD2) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out." 125 Hint: Be sure that the new aggregate demand curve (AD2) is parallel to the initial aggregate demand curve (AD₁). You can see the slope of AD₁ by selecting it on the graph. 120 115 110 AD ●●● 1 ng.cengage.com and the spending multiplier for this economy is 5 b Home | bartleby AD 2 ? + Q Search this course i 97% × ? A-Z A+ bongo
7:12 PM Fri May 19 < X B CENGAGE MINDTAP Homework (Ch 16) is -$1.5 trillion PRICE LEVEL The following graph shows the aggregate demand curve (AD₁) for this economy before the change in government spending. 140 135 Use the green line (triangle symbol) to plot the new aggregate demand curve (AD2) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out. 130 Hint: Be sure that the new aggregate demand curve (AD2) is parallel to the initial aggregate demand curve (AD₁). You can see the slope of AD₁ by selecting it on the graph. 125 120 115 110 105 100 0 AD AA C MindTap - Cengage Learning 1 1 2 3 4 5 OUTPUT (Trillions of dollars) 6 7 ●●● 8 ng.cengage.com AD2 ? b Home | bartleby Grade It Now Save & Continue Continue without saving + Q Search this course i 97% × ? A-Z A+ bongo
Transcribed Image Text:7:12 PM Fri May 19 < X B CENGAGE MINDTAP Homework (Ch 16) is -$1.5 trillion PRICE LEVEL The following graph shows the aggregate demand curve (AD₁) for this economy before the change in government spending. 140 135 Use the green line (triangle symbol) to plot the new aggregate demand curve (AD2) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out. 130 Hint: Be sure that the new aggregate demand curve (AD2) is parallel to the initial aggregate demand curve (AD₁). You can see the slope of AD₁ by selecting it on the graph. 125 120 115 110 105 100 0 AD AA C MindTap - Cengage Learning 1 1 2 3 4 5 OUTPUT (Trillions of dollars) 6 7 ●●● 8 ng.cengage.com AD2 ? b Home | bartleby Grade It Now Save & Continue Continue without saving + Q Search this course i 97% × ? A-Z A+ bongo
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Highway Construction
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS