# Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining$0.25. The following graph shows the economy’s initial aggregate-demand curve (AD1AD1).

Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining$0.25. The following graph shows the economy’s initial aggregate-demand curve (AD1AD1).

Suppose the government increases its purchases by $3.75 billion. Don't use plagiarized sources. Get Your Custom Essay on Consider a hypothetical economy in which households spend$0.75 of each additional dollar they earn and save the remaining $0.25. The following graph shows the economy’s initial aggregate-demand curve (AD1AD1). Just from$8 /Page 0r 300 words

Use the green line (triangle symbol) on the following graph to show the aggregate-demand curve (AD2AD2) after the multiplier effect takes place.

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The following graph shows the money market in equilibrium at an interest rate of 7.5% and a quantity of money equal to $60 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. Money DemandMoney Supply02040608010012015.012.510.07.55.02.50INTEREST RATEMONEY (Billions of dollars)Money Demand Money Supply Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by$0.5 billion. The change in the interest rate (according to the change you made to the money market in the previous scenario) therefore causes the level of investment spending to   (fall/rise) by    .(2.5 billions/ 1.25 bil/ 0.62 bil)