The graph shows an economy that is above full employment. To restore full employment, the government decreases government expenditure by $0.5 trillion Draw a curve to show the effect of the decrease if this is the only change in spending plans. Label the curve AD-AE The decrease in government expenditure sets off a multiplier process. Draw a curve that shows the multiplier effect that returns the economy to full employment. Label it AD₁ Draw a point at the full-employment equilibrium. 140 130 120- 110 100- Price level (GDP price index, 2012-100) Potential GDP 115 90+ 19 (20,95) 21 AS ADO 20 21 Real GDP (trillions of 2012 dollars) 22 ou

The graph shows an economy that is above full employment. To restore full employment, the government decreases government expenditure by $0.5 trillion Draw a curve to show the effect of the decrease if this is the only change in spending plans. Label the curve AD-AE The decrease in government expenditure sets off a multiplier process. Draw a curve that shows the multiplier effect that returns the economy to full employment. Label it AD₁ Draw a point at the full-employment equilibrium. 140 130 120- 110 100- Price level (GDP price index, 2012-100) Potential GDP 115 90+ 19 (20,95) 21 AS ADO 20 21 Real GDP (trillions of 2012 dollars) 22 ou

Macroeconomics: Principles and Policy (MindTap Course List)

13th Edition

ISBN:9781305280601

Author:William J. Baumol, Alan S. Blinder

Publisher:William J. Baumol, Alan S. Blinder

Chapter8: Aggregate Demand And The Powerful Consumer

Section: Chapter Questions

Problem 8DQ

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