The marginal propensity to consume (MPC) for this econamy is . and the spending multiplier for this economy isSuppose the govemment in this economy decides to decrease govemment purchases by $250 bilion. The decrease in government purchases willlead to a decrease in income, generating an initial change in consumption equal tosecond change in consumption equal toThis decreases income yet again, causing aThe total change in demand resulting from the initial change in government spending isThe following graph shows the aggregate demand curve (AD ) for this economy before the change in govemment spending.Use the green line (trangie symbol) to plot the new aggregate demand curve (AD:) after the multiplier effect takes place. For simplioity, assume thatthere is no "crowding out."Hint: Be sure that the new aggregate demand curve (AD) is paralel to the initial aggregate demand curve (AD). You can see the slope of AD byselecting t on the graph.540AD.AD,130100OUTPUT (Tions of doles)PRICE LEVELS BEE

The household spends 0.5 of each additional dollar they earn, The MPC is 0.5 Spending Multiplier =…

The marginal propensity to consume (MPC) for this economy is and the spending multiplier for this economy is Suppose the govemment in this economy decides to decrease govemment purchases by $250 bion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to second change in consumption equal to This decreases income yet again, causing a The total change in demand resulting from the initial change in government spending is The following greph shows the aggregate demand curve (AD, ) for this economy before the change in govemment spending. Use the green line (triangle symbel) to plot the new aggregate demand curve (AD) after the multiplier efect takes place. For smplioty, assume that there is no "crowding out." Hint Be sure that the new aggregate demand curve (AD)s parael to the initial aggregate demand curve (AD). You can see the slope of AD, by selecting t on the greph.

The marginal propensity to consume (MPC) for this economy is and the spending multiplier for this economy is Suppose the govemment in this economy decides to decrease govemment purchases by $250 bion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to second change in consumption equal to This decreases income yet again, causing a The total change in demand resulting from the initial change in government spending is The following greph shows the aggregate demand curve (AD, ) for this economy before the change in govemment spending. Use the green line (triangle symbel) to plot the new aggregate demand curve (AD) after the multiplier efect takes place. For smplioty, assume that there is no "crowding out." Hint Be sure that the new aggregate demand curve (AD)s parael to the initial aggregate demand curve (AD). You can see the slope of AD, by selecting t on the greph.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 2TY

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