AA A ng.cengage.com C Content x MindTap - Cengage Lea... My Awards - Ellucian St... Keshonna CENGAGE | MINDTAP y Home Homework (Ch 15) Courses Back to Assignment atalog and Study To Attempts Keep the Highest / 3 ental Options 1. The multiplier effect of a change in government purchases ollege Success Tips Consider a hypothetical closed economy in which households spend $0.60 of each additional dollar they areer Success Tips earn and save the remaining $0.40. elp The marginal propensity to consume (MPC) for this economy is _ , and the spending multiplier for this economy is ive Feedback Suppose the government in this economy decides to decrease government purchases by $400 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 ( AD1) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate demand curve ( AD2) after the spending multiplier effect takes place. Hint: Be sure that the new aggregate demand curve (A /2) is parallel to the initial aggregate demand curve (AL)). You can see the slope of AL by selecting it on the graph. 140 SAD 1 A 135 AD 130 125 120 PRICE LEVEL (CPI) 115 . 110 105 100 0 REAL GDP (Trillions of dollars) Grade It Now Save & Continue Continue without saving