Please examine the graph below illustrating several aggregate expenditure curves

Question

Please examine the graph below illustrating several aggregate expenditure curves for a hypothetical economy.f this economy experienced some change that caused it to move from AE1 to AE3, which of the following would be most accurate? 8 5 750 ??? $650 $600 $550 $500 AE2 1400 Real GDP Equilibrium Real GDP will have fallen from $750 billion to $250 billion Equilibrium Real GDP will have fallen from $450 billion to $700 billion Equilibrium Real GDP will have increased from $250 billion to $700 billion. Equilibrium Real GDP will have increased from $250 billion to $450 billion. Save and

Explanation / Answer

- equilibrium gdp will have increased from 250 to 700 billion

Equilibrium is reached at the intersection of AE and 45 degee line. Before the change it happens AE1 and 45 degree line intersect and result in 250 billion gdp. After the change AE3 and 45 degree line intersect at 700 billion gdp.

- multiplier is equal to 1.0

Multiplier= change in Aggregate expenditure / change in real gdp

Initially AE is 300 and gdp is also 300

After the shift in AE, AE is 500 and gdp is 500

Multiplier= (500-300)/(500-300)= 1

- 5.0%

According to economists reasonable level of unemployment is around 4%.

- 2.5%

According to economists reasonable level of inflation is around 2%.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---