Figure 12.11 Alt text for Figure 12.11: In figure 12.11, a graph depicting the total change in aggregate demand.
Long description for Figure 12.11: The x-axis is labelled, real GDP (trillions of 2007 dollars) , and the y-axis is labelled, price level (CPI) .2 lines are shown; AD1 and AD2.Line AD1 begins at the top left corner and slopes down to the bottom center.Line AD2 follows the same slope as line AD1, but is plotted to the right.Point A is plotted half way along line AD1.Point B is plotted approximately 3 quarters of the way along line AD2.Points A and B are connected with a dotted line, and the area between them is indicated by a right pointing arrow.
-Refer to Figure 12.11.In the graph above, the shift from AD₁ to AD₂ represents the total change in aggregate demand.If government purchases increased by $50 billion, then the distance from point A to point B ________ $50 billion.

Question

Figure 12.11

Alt text for Figure 12.11: In figure 12.11, a graph depicting the total change in aggregate demand.
Long description for Figure 12.11: The x-axis is labelled, real GDP (trillions of 2007 dollars) , and the y-axis is labelled, price level (CPI) .2 lines are shown; AD1 and AD2.Line AD1 begins at the top left corner and slopes down to the bottom center.Line AD2 follows the same slope as line AD1, but is plotted to the right.Point A is plotted half way along line AD1.Point B is plotted approximately 3 quarters of the way along line AD2.Points A and B are connected with a dotted line, and the area between them is indicated by a right pointing arrow.
-Refer to Figure 12.11.In the graph above, the shift from AD₁ to AD₂ represents the total change in aggregate demand.If government purchases increased by $50 billion, then the distance from point A to point B ________ $50 billion.

Quizplus · Accepted Answer

The shift from point A to point B represents the total change in aggregate demand due to the multiplier effect. When government purchases increase by $50 billion, the initial increase in aggregate demand is magnified by the multiplier, resulting in a total change that is greater than the initial $50 billion increase.

Figure 1211 Alt Text for Figure 12