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Hello, I need some assistance with the following blanks and placing 'AD2 on the graph, thank you! Consider a hypothetical closed economy.r in which households
Hello, I need some assistance with the following blanks and placing 'AD2" on the graph, thank you!
Consider a hypothetical closed economy.r in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The marginal propensity to consume (MPC) for this economy is V , and the spending multiplier for this economy.r is 7 Suppose the government in this economy decides to decrease government purchases by $250 billion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to V . This decreases income yet again, causing a second change in consumption equal to v . The total change in demand resulting from the initial change in government spending is v The following graph shows the aggregate demand curve (AD1) for this economy before the change in government spending. Use the green line {triangle symbol) to plot the new aggregate demand curve {ADE} after the multiplier e'ect takes place. For simplicir, assume that there is no "crowding out ." Hint: Be sure that the new aggregate demand curve (AD?) is parallel to the initial aggregate demand curve (ADl). You can see the slope of AD; by selecting it on the graph. 140 A AD1 135 AD 2 130 125 120 PRICE LEVEL 115 110 105 100 8 1 2 3 4 5 6 7 OUTPUT (Trillions of dollars)Step by Step Solution
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