The options for the dropdown question are rise/fall; $1.25 billion, $0.62 billion; and $2.5 billion. Increase/decrease; $1.2 billion, $2 billion, and $5 billion. For this question, Provide an illustration that indicates which direction each curve should be shifted in

 

 

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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 (AD₂). 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 AD₁. You can see the slope of AD, by selecting it on the following graph. PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 9 AD, 105 110 115 120 125 OUTPUT (Billions of dollars) 130 135 140 A AD₂ 4 AD3 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 (AD₂). 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 AD₁. You can see the slope of AD, by selecting it on the following graph. PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 9 AD, 105 110 115 120 125 OUTPUT (Billions of dollars) 130 135 140 A AD₂ 4 AD3

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Certainly Heres an illustration indicating the directions in which each curve should be shifted base... View the full answer