On the following graph, show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves.SupplyXDemand21020304050QUANTITY OF LOANABLE FUNDS (Billions of dollars)12IN TEREST RATE100060ģDemandSupply?Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $1.25 billion.byAccording to the change you made to the loanable funds market in the previous scenario, the increase in government purchases causes the interestrate in the money market to from 6% to%. The change in the interest rate causes the level of investment spending to$billion.byAfter the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded to$billion at each price level. The impact of an increase in government purchases on the interest rate and the level of investmentspending is known as theeffect.Place the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve AD3 after accounting forthe impact of the increase in government purchases on the interest rate and the level of investment spending. Be sure your final aggregate demandcurve (AD3) is parallel to AD, and AD₂. You can see the slopes of AD₁ and AD₂ by mousing over them on the graph.

Government expenditure refers to the amount of money that a government spends on a variety of…

According to the change you made to the loanable funds market in the previous scenario, the increase in government purchases causes the interest rate in the money market to from 6% to %. The change in the interest rate causes the level of investment spending to by billion. After the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded to billion at each price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the effect.

According to the change you made to the loanable funds market in the previous scenario, the increase in government purchases causes the interest rate in the money market to from 6% to %. The change in the interest rate causes the level of investment spending to by billion. After the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded to billion at each price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the effect.

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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