Homework (Ch 21) Suppose there is some hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the $0.25 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 $3.75 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 AD, . You can see the slope of AD, by selecting it on the following graph. 116 A 114 AD 2 112 AD 110 AD 3 108 PRICE LEVEL 106 104 102 100 100 105 110 115 120 125 130 135 140 OUTPUT (Billions of dollars)