Homework Answers
Equilibrium:
PAE = Total output or real GDP
The following equation is required for PAE.
PAE = Consumption + Planned investment + Government spending + (Export – Import)
= 50 + 25 + 10 + 5; [as (X – M) = (20 – 15) = 5]
= 90 (Answer)
AE is the addition of unplanned change in inventories and PAE. The following equation is required for AE
AE = PAE + Unplanned change in inventories
= 90 + (- 10)
= 90 – 10
= 80 (Answer)
Note: planned change in inventories should not be considered here, since it is already considered in planned investment.
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