Figure 12.13 Alt text for Figure 12.13: In figure 12.13, a graph depicting the shift in aggregate demand.
Long description for Figure 12.13: The x-axis is labelled, real GDP (trillions of 2007 dollars) , and the y-axis is labelled, price level (CPI) .3 lines are shown; AD1, AD2, and SRAS.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.The area between lines AD1 and AD2 is indicated by a right pointing arrow.Line SRAS intersects line AD1 at point A, more than half way along line AD1.Line SRAS intersects line AD2 at point B, less than half way along line AD2.
-Refer to Figure 12.13.An increase in government purchases of $20 billion causes aggregate demand to shift ultimately from AD₁ to AD₂.The difference in real GDP between point A and point B will be ________ $20 billion.

Question

Figure 12.13

Alt text for Figure 12.13: In figure 12.13, a graph depicting the shift in aggregate demand.
Long description for Figure 12.13: The x-axis is labelled, real GDP (trillions of 2007 dollars) , and the y-axis is labelled, price level (CPI) .3 lines are shown; AD1, AD2, and SRAS.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.The area between lines AD1 and AD2 is indicated by a right pointing arrow.Line SRAS intersects line AD1 at point A, more than half way along line AD1.Line SRAS intersects line AD2 at point B, less than half way along line AD2.
-Refer to Figure 12.13.An increase in government purchases of $20 billion causes aggregate demand to shift ultimately from AD₁ to AD₂.The difference in real GDP between point A and point B will be ________ $20 billion.

Quizplus · Accepted Answer

The difference in real GDP between point A and point B will be greater than $20 billion due to the multiplier effect, where an initial increase in spending leads to further increases in income and consumption, amplifying the initial impact on aggregate demand.

Figure 1213 Alt Text for Figure 12