The following table shows the real output demanded and supplied at various price levels in a hypo…
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The following table shows the real output demanded and supplied at various price levels in a hypothetical economy.
|Real Output Demanded (Billions of dollars)||Price Level (Index number)||Real Output Supplied (Billions of dollars)|
On the following graph, use the blue points (circle symbol) to plot the aggregate demand (Initial AD) curve for the economy. Then use the orange points (square symbol) to plot the aggregate supply (AS) curve for the economy.
Note: Line segments will automatically connect the points.
Suppose that the government spending increases by $5 billion and the expenditure multiplier in this economy is 6.
On the previous graph, use the purple points (diamond symbol) to illustrate the effect of the increase in government spending on the aggregate demand (New AD) curve
The change in government spending
the equilibrium level of real output by
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Technifi Expert’s Answer:
Change in government spending increases
The real output rises by $30 billions.
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