Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The following graph shows the economy's initial aggregate-demand curve (AD₂). Suppose the government increases its purchases by $3.75 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 AD, by selecting it on the following graph. PRICE LEVEL 114 112 110 100 106 104 100 MP₁ following 106 110 118 120 125 130 OUTPUT (Bons of dollars) 135 HO AD₂ AD₁

Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The following graph shows the economy's initial aggregate-demand curve (AD₂). Suppose the government increases its purchases by $3.75 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 AD, by selecting it on the following graph. PRICE LEVEL 114 112 110 100 106 104 100 MP₁ following 106 110 118 120 125 130 OUTPUT (Bons of dollars) 135 HO AD₂ AD₁

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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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. 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 LEVEL 116 114 112 110 108 106 104 102 100 AD 100 1 102 104 106 108 110 OUTPUT (Billions of dollars) 112 114 116 AD2 AD 3
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