5. Fiscal policy, the money market, and aggregate demand 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 (AD1). 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 (AD,) is parallel to AD,. You can see the slope of AD, by selecting it on the following graph. 116 114 AD2 112 AD, 110 AD, 108 106 104 102 100 100 105 110 115 120 125 130 135 140 OUTPUT (Billions of dollars) PRICE LEVEL

Principles of Economics 2e
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ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
ChapterA: The Use Of Mathematics In Principles Of Economics
Section: Chapter Questions
Problem 3RQ: Exercise A3 What dome slices of a pie chart represent?
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A Topic: H
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Homework (Ch 16)
5. Fiscal policy, the money market, and aggregate demand
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Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The following
O Catalog and Study Tools
graph shows the economy's initial aggregate demand curve (AD1).
A-Z
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Suppose the government increases its purchases by $3.75 billion.
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Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place.
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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.
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116
A
bongo
114
AD2
Evaluating Online
112
AD,
Information
110
AD3
108
e Help
106
Give Feedback
104
102
100
100
105
110
115
120
125
130
135
140
OUTPUT (Billions of dollars)
PRICE LEVEL
Transcribed Image Text:A Topic: H G How wc A Recorde * Min x b Answere A Files A Grades Q ETX 20 Q Midtern Q ETX 20 Q ETX 20 M Inbox (7 A Assignn C Crunch N Netflix O (5) COA ng.cengage.com/static/nb/ui/evo/index.html?deploymentld=5983131871027318950422967971&elSBN=97803571336688&id=D1056367112&isnapshotld=2191097& Update : Geoffrey v CENGAGE MINDTAP Q Search this course A My Home Homework (Ch 16) 5. Fiscal policy, the money market, and aggregate demand Courses Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The following O Catalog and Study Tools graph shows the economy's initial aggregate demand curve (AD1). A-Z Partner Offers Suppose the government increases its purchases by $3.75 billion. EE Rental Options Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. - College Success Tips 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. Career Success Tips RECOMMENDED FOR YOU 116 A bongo 114 AD2 Evaluating Online 112 AD, Information 110 AD3 108 e Help 106 Give Feedback 104 102 100 100 105 110 115 120 125 130 135 140 OUTPUT (Billions of dollars) PRICE LEVEL
bongo
O Topic: H
G How wc
A Recorde
* Min x
b Answere
A Files
A Grades
Q ETX 20
Q Midtern
Q ETX 20
Q ЕTX 20
M Inbox (7
A Assignn
C Crunch
N Netflix
O (5) COA
ng.cengage.com/static/nb/ui/evo/index.html?deploymentld=5983131871027318950422967971&elSBN=97803571336688&id=D1056367112&isnapshotld=2191097&
Update
: Geoffrey v
CENGAGE MINDTAP
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A My Home
Homework (Ch 16)
The following graph shows the money market in equilibrium at an interest rate of 7.5% and a quantity of money equal to $60 billion.
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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.
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15.0
Money Supply
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12.5
Money Demand
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10.0
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5.0
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Money Demand
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2.5
e Help
20
40
60
80
100
120
Give Feedback
MONEY (Billions of dollars)
Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $0.5 billion. The change in the
interest rate (according to the change you made to the money market in the previous scenario) therefore causes the level of investment spending to
hy
12:33 PM
O Type here to search
a ENG
2/27/2021
(4
INTEREST RATE
Transcribed Image Text:bongo O Topic: H G How wc A Recorde * Min x b Answere A Files A Grades Q ETX 20 Q Midtern Q ETX 20 Q ЕTX 20 M Inbox (7 A Assignn C Crunch N Netflix O (5) COA ng.cengage.com/static/nb/ui/evo/index.html?deploymentld=5983131871027318950422967971&elSBN=97803571336688&id=D1056367112&isnapshotld=2191097& Update : Geoffrey v CENGAGE MINDTAP Q Search this course A My Home Homework (Ch 16) The following graph shows the money market in equilibrium at an interest rate of 7.5% and a quantity of money equal to $60 billion. Courses 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. O Catalog and Study Tools A-Z Partner Offers EE Rental Options 15.0 Money Supply - College Success Tips 12.5 Money Demand Career Success Tips RECOMMENDED FOR YOU 10.0 Money Supply 7.5 5.0 Evaluating Online Money Demand Information 2.5 e Help 20 40 60 80 100 120 Give Feedback MONEY (Billions of dollars) Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $0.5 billion. The change in the interest rate (according to the change you made to the money market in the previous scenario) therefore causes the level of investment spending to hy 12:33 PM O Type here to search a ENG 2/27/2021 (4 INTEREST RATE
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The government expenditure multiplier is the ratio of change in income (∆Y) to a change in government spending (∆G)

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