3 b. C. the aggregate demand curve. Draw the AE curve for this case. Suppose an increase in the price level causes the economy to move to Point B on the aggregate demand curve. Draw the new AE curve. Suppose government spending decreases by $0.2T. Draw the new AD curve.

3 b. C. the aggregate demand curve. Draw the AE curve for this case. Suppose an increase in the price level causes the economy to move to Point B on the aggregate demand curve. Draw the new AE curve. Suppose government spending decreases by $0.2T. Draw the new AD curve.

MACROECONOMICS

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ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section: Chapter Questions

Problem 3TY

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Question

5.
In an economy, the MPC is 0.5. The graph on the right
depicts the economy's aggregate demand curve.
Suppose the economy starts out at Point A on
the aggregate demand curve. Draw the AE
curve for this case.
a.
b.
C.
d.
Suppose an increase in the price level causes the
economy to move to Point B on the aggregate
demand curve. Draw the new AE curve.
Suppose government spending decreases by
$0.2T. Draw the new AD curve.
In place of the change in part (c), suppose net
taxes decrease by $0.2T. Draw the new AD
curve.
Price
Level
(P)
170
160
150
140
130
120
110
100
90
80
70
60
AD
2.6
3.0 3.4 3.8 4.2 4.6
2.8 3.2 3.6 4.0 4.4 4.8
Y
(T of $)

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