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Government increases government expenditure

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Reference no: EM131273931

The graph shows an economy below full employment.

To restore full employment, the government increases government expenditure by$0.5 trillion. Draw a curve to show the effect of the increase if it is the only change in spending plans. Label the curve AD0+Upper DeltaΔE.

The increase 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 thefull-employment equilibrium.

Reference no: EM131273931

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