4HOMEYset of any of yes to $30-0--o-My lySuppose that for every increase in the sterest rate ens peresage the end of westmant spending decies by 565 bon Based on theanes the level of investmentstobSuppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on thechanges made to the money market in the previous scenario, the new interest rate causes the level of investment spending to byTaking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded toknown as thebyat every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending iseffect.Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (ADS) after accounting forthe 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 (AD) is parallel to AD, and AD. You can see the slopes of AD, and AD₂ by selecting them onthe graph. 5. Fiscal policy, the money market, and aggregate demandSuppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have leftover. The following graph plots the economy's initial aggregate demand curve (AD) ).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 LEVEL116114112110106106104102100100AD102104 100 108OUTPUT (Billions of dollars)112114 116AD₂AD

The AD-AS model was developed by John Maynard Keynes to explain variations in the economy's output…

5. Fiscal policy, the money market, and aggregate demand 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 (AD) ). 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 AD, by selecting it on the following graph. PRICE LEVEL 116 114 112 110 - 106 106 104 102 100 100 AD 102 104 100 108 110 OUTPUT (Billions of dollars) 112 114 116 AD₂ AD,

5. Fiscal policy, the money market, and aggregate demand 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 (AD) ). 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 AD, by selecting it on the following graph. PRICE LEVEL 116 114 112 110 - 106 106 104 102 100 100 AD 102 104 100 108 110 OUTPUT (Billions of dollars) 112 114 116 AD₂ AD,

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 2TY

See similar textbooks

Similar questions

hich theory of consumption best explains the consumption behavior of consumers of our economy? Question No: 02 [Marks: 10] If the State Bank started printing large quantities of Pakistani Rupees (Rs), what would happen to the number of Pakistani Rupees a dollar could buy? Why? Question No: 03 [Marks: 10] Deseribe the difference batuuean foreian diract investmet and foraion nortfolie invastment Who is mora likelu to
If consumption is C=100+0.75Yd Taxes is T=50+0.5Y Export is X=200 Import is M=50+0.25Y Government spending is G=150 Investment is I=200 Usethemultiplierapplicabletoexport,toexplainhowa100–billiondeclineindemand forexportcouldaffecttheeconomy’s: (i) Balanceofpayment
2. is it possible for total saving to fall when people beome more thirfty?
1f the Consumption funchon, espressedas C=30+0,7Yd, chayes to C=20+028Yd. which of the fellowing will accaur? OThe Cansumption function Shifts.doon in. Parallel. 6 its slope Anckeases as the Consumpion functionmaes up O Hs Slape ockeases as the Sausing function. slides up its Slope 1wereases as the Consumption function. slides dacana O it sope deExeAses as the Saurisq function. sltdes down. the Sauting
In saving drepped sharply in the economy, what would be likely to happen to investiment? Why
Assume in a simple economy that thc level of saving is -500 when aggregate ourput equals zero and that the margina! propensity to save is 0.2. Derive the saving function and the consumption function, and draw a graph showing these func- tions. At what level of aggregate ouiput does the consumption curve cruss the 45° line? Explain your answer and show this un the graph.
We said the easiest type of Foreign Cirect investment (ro Importreport Franchusing O Loenng O oreented QUESTION 22 Whch type of invetment is the hardelymast expentive type of investment ina toreign cy importierport O Pranchsing O ucensing O Greenfield
Consider the impact of a cut in the interest rate set by the central bank (the "policy rate"), which causes banks to lower interest rates for both borrowers and lenders. Select one or more: U a. Borrowers like Julia will definitely be better off O b. Borrowers like Julia will definitely increase their current consumption O c. If Marco is a saver (not an investor) he will definitely be worse off O d. If Marco is a saver he will definitely decrease his consumption
The cost of rebuilding the Philippines after typhoon Haiyan could reach USD 5.8bn”, a senior official has said. Assume the government of Australia Department of Foreign Affairs and Trade provided a grant of USD 5.8 billion. Also assume that despite the hardships the Philippine families experienced, 15% was the beneficiary savings from the Australian grant. Further, assume all other factors remain constant.a. Calculate the total effect of the spending multiplier of the Australian government grant on the Philippine economy GDP growth. b. Examine the overall multiplier effect of the USD5.8 billion grant on the Philippine economy. Answer asap n correctly with proper typed explanation
1. What would happen to multiplier if investment were to be positively related to income? 2. is it possible for total saving to fall when people beome more thirfty? 3. What is meant by multiplier?Why shoul the value of multiplier rise when people spend more on consumption?
Imagine that the U.S. economy finds itself in the followingsituation:agovernmentbudgetdeficitof$100 billion, total domestic savings of $1,500 billion, and total domestic physical capital investment of $1,600 billion.Accordingtothenationalsavingandinvestment identity,whatwillbethecurrentaccountbalance?What willbethecurrentaccountbalanceifinvestmentrisesby $50billion,whilethebudgetdeficitandnationalsavings remain the same?
Assume that in 2016, the followng prevals n the Republic of Nurd Goverment spending (0) 50 Not taxos (T)- 50 Planned investment - S30 Assume that househoids in Nurd censume 75 percent of heir income, they save 25 percent of their income. Thun, the consumption function and saving function of Nurd re C-075Y, and S=025Y. where disposabile income YY-T Determine the equilitrium level of income Equilibrium income =$(Enter your reaponse as an integer.)