Assignment 4 - Part 3 of 3 - Chapter 16 Questions The following graph shows the money market in equilibrium at an interest rate of 1.5% and a quantity of money equal to $45 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. 3.0 Money Supply Money Demand 2.5 20 Money Supply INTEREST RATE 1.5 MP 2 10 MD. 30 75 MONEY (Billions of dollars) Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $2.5 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 _ by _ After the multip $0.62 billion counted for, the change in investment spending will cause the quantity of output demanded to $1.25 billion e level. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the effect. $2.5 billion Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate-demand curve (AD;) after accounting for the impact of the increase in government purchases on the interest rate and the level of investment spending. Hint: Be sure your final aggregate-demand curve (AD;) is parallel to AD, and AD2. You can see the slopes of AD, and ADy by selecting them on the graph