4. The multiplier effect of a change in government purchases Consider a hypothetical closed economy in which households spend $0.65 of each additional doliar they earn and save the remaining $0.35. The marginal propensity to consame (MPC) for this economy is , and the spending multiplier for this economy is Suppose the govermment in this economy decides to decrease government purchases by $350 billion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to This decreases income yet again, causing a second change in consumption equal to The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate demand curve (ADt) for this economy before the change in government spending. Use the green fine (triangle symbol) to plot the new aggregate demand curve (AD2) after the multiplier effect takes place, For simplicity, assume that there is no "crowding out." dint: Be sure that the new aggregate demand curve (AD2) is parallel to the initial aggregate demand curve (AD1). You can see the slope of AD1 by electing it on the graph. tomework (Ch 2.1) Use the green ine (triangue symbol) to pioc the new aggregate demand curve (ADD2) after the multiplier effoct fakes place, For simplicity, assume that there is no "crowding out." Hint ie sure that the new aggregate demand curve (AD2) is paraliel to the initial aggregate demand curve (ADi). You can sce the silope of AD1 by seiectind it on the graph