Suppose that the present equilibrium price level and level of real GDP are 100 and $280, and that data set C represents the relevant aggregate supply schedule for the economy. A line that stretches up at a 45-degree angle represents the set of points (1,1), (2,2), (3,3) and so on, where the measurement on the vertical axis is equal to the measurement on the horizontal axis. $6 trillion. In Figure 1, this point of equilibrium (EThe meaning of “equilibrium” remains the same; that is, Conversely, consider the situation where the level of output is at point L—where real output is lower than the equilibrium. If government spending decreases by $6 billion, equilibrium GDP will:If inventories are declining unexpectedly at the current level of GDP:Answer the next question on the basis of the following information for an open economy:Assume the level of investment is independent of the level of GDP. Macro equilibrium in the income-expenditure model is found at the point where the level of GDP, or national income, equals aggregate expenditure. Firms will respond by increasing their level of production and GDP will rise. This line, called the 45 degree line, shows the only point on the aggregate expenditure line where the total quantity of goods and services being purchased (AD) equals the total quantity of goods and services being produced (AS). Refer to the above information. Read on to practice finding equilibrium in the income-expenditure model, then apply these principles to recessions and inflations in Keynesian policy.Figure 1 shows the aggregate expenditure function, based on data in Table 1. If exports should decrease by $20 billion at each level of GDP, other factors constant, then the equilibrium GDP for the economy …
214.
The combination of the aggregate expenditure line and the income=expenditure line (i.e. Refer to the graph for a private closed economy. All figures are in billions of dollars.
B. If the interest rate rises, the investment schedule will:When planned injections of investment, government spending, and exports equal leakages of saving, taxes, and imports:All else equal, if domestic consumers begin to spend a greater fraction of their consumption expenditures on foreign-produced goods:If the MPC is .75, government could eliminate a $60 recessionary expenditure gap by: According to the figure at right, the equilibrium level of real Gross Domestic Product (GDP) is A. The equilibrium level of GDP in this economy is: A) $240.B) $300. Graphically, this is easy to see as a point along the line that evenly divides the two axis on the graph. D. $12 trillion. All figures in the table are in billions of dollars of dollars.
the 45 degree line) Macro equilibrium occurs at the level of GDP where where the aggregate expenditure line crosses the 45-degree line (which shows all points where AE = Y). The second conceptual line on the Keynesian cross diagram is the line showing where national income = aggregate expenditure. In that case, the level of aggregate demand in the economy is above the 45-degree line, indicating that the level of aggregate expenditure in the economy is greater than the level of output. C) $360. It is the only point on the aggregate expenditure line where the total quantity of goods and services being purchased (AD) equals the total quantity of goods and services being produced (AS). Graphically, this is easy to see as a point along the line that evenly divides the two
The change in GDP associated with a change in government spending is:larger than—and opposite in sign to—that associated with an equal change in taxesIf the MPC is .75 and the economy has a recessionary expenditure gap of $10 billion, then equilibrium GDP is:Assume the MPC is 2/3. C. $20 trillion.
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