ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
116
114
AD2
112
AD1
110
AD3
108
106
104
102
100
100
102
104
106
108
110
112
114
116
OUTPUT (Billions of dollars)
PRICE LEVEL
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Transcribed Image Text:116 114 AD2 112 AD1 110 AD3 108 106 104 102 100 100 102 104 106 108 110 112 114 116 OUTPUT (Billions of dollars) PRICE LEVEL
3. Fiscal policy, the money market, and aggregate demand
Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following
graph shows the economy's initial aggregate demand curve (AD1 ).
Suppose the government increases its purchases by $3 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.
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Transcribed Image Text:3. Fiscal policy, the money market, and aggregate demand Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD1 ). Suppose the government increases its purchases by $3 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.
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