# Ch3.2 - 3.5 Using a Graph Fill in the table below and then...

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5 sing a Graph 3.5 Using a Graph ± Fill in the table below and then graphically illustrate the equilibrium level of output. 61

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sing a Graph xample Using a Graph --Example Production Income C I G Sales (Z) Inventory I=2; G=10; C=3+0.5Y D , T=4 (Y) (Y) Investment 22 24 26 28 62
sing a Graph Using a Graph ± Suppose c 0 increases from 3 to 4. Clearly indicate the change in c 0 , the initial and final equilibrium levels of output in the graph. ± Show the multiplier effect in the graph. 63

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otes on Drawing a Graph Notes on Drawing a Graph 1. Correctly label the vertical axis (production) and the horizontal axis (income) 2. Draw a line showing the relationship between production and income. It will be a 45-degree line with a slope equal to 1. 3. Plot demand function. Show the vertical intercept and the slope. 4. Show the equilibrium point, at which production is equal to demand. 5. Change in autonomous spending will lead to a 64 parallel shift of demand function. Show the change in autonomous spending.
sing a Graph Using a Graph Figure 3 - 2 Equilibrium in the Goods Market Equilibrium output is determined by the condition that production is equal to demand. 65

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Using a Graph—Change in Equilibrium Output Figure 3 - 3 The Effects of an crease in Autonomous Increase in Autonomous Spending on Output An increase in autonomous spending s a more than one has a more than one- for-one effect on equilibrium output. 66
sing a Graph ultiplier Effect Using a Graph—Multiplier Effect ± The first-round increase in demand is indicated by the distance AB which quals \$1 billion equals \$1 billion. 67

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sing a Graph ultiplier Effect Using a Graph—Multiplier Effect ± The first-round increase in demand leads to an equal increase in production 1 billion) shown by (\$1 billion), shown by the distance AB. n increase in ± An increase in production equals to n increase in income an increase in income, shown by the distance C 68 BC .
sing a Graph ultiplier Effect Using a Graph—Multiplier Effect ± The second-round increase in demand shown by the distance CD equals \$1 billion times the marginal propensity to consume (0.5). ± How much does CD represent? 69

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sing a Graph ultiplier Effect Using a Graph—Multiplier Effect ± This second-round increase in demand leads to an equal increase in production, shown by the distance CD, and thus an equal increase in income, shown by the distance E DE.
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## This note was uploaded on 02/19/2011 for the course ECON 1021 taught by Professor Kokwanwai during the Fall '08 term at CUHK.

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Ch3.2 - 3.5 Using a Graph Fill in the table below and then...

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