Consider a hypothetical economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The following graph shows the economy's initial aggregate demand eurve...

Extracted text: Consider a hypothetical economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The following graph shows the economy's initial aggregate demand eurve (AD1). Suppose the government increases its purchases by $1 billion. After the multiplier effect, the increase in government purchases will cause the quantity of output demanded to increase by $5.00 billion at each price level. Place the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Be sure the new aggregate demand curve (AD2) is parallel to AD1. Hover your'mouse over the AD1 curve to see its slope. 116 AD2


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