Consider a hypothetical economy where households send $0.75 of each additional d

Question

Consider a hypothetical economy where households send $0.75 of each additional dollar they earn and sabe the remaining $0.25. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $3.75 billion. After the multiplier effect, the increase in government purchases will cause the quantity of output demanded to _________ by _________at each price level. Use the green line (triangle symbols) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect. Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can see slope of AD1 by mousing over it on the following graph.

Explanation / Answer

first fill in the black should increase

Second fill in the black should $15 billion

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