Answer the following questions, which relate to the aggregate expenditures model: Instructions: Enter your answer as...

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Answer the following questions, which relate to the aggregate expenditures model:

Instructions: Enter your answer as a whole number.

a. Given the following: C_a = $120, I_g = $60, X_n = − $10, and G= $30, what is the economy’s equilibrium GDP?

b. If real GDP in an economy is currently $230, will the economy’s real GDP rise, fall, or stay the same?

(Click to select) Real GDP will rise. Real GDP will fall. Real GDP stay the same.

c. Suppose that full-employment (and full-capacity) output in an economy is $230. If C_a = $170, I_g = $60, X_n = − $10, and G= $30, what will be the macroeconomic result?

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Answer 1

Answer #1

(a) At equilibrium, GDP (Y) = Aggregate expenditure (AE)

AE = 120 + 60 + 30 + (-10)

AE= 200

Y = AE = $200

Equilibrium GDP = $200

(b) Current Real GDP = $230

Aggregate Expenditure = $200.

Aggregate expenditure is less than the current Real GDP. It implies the economy's real GDP will fall.

Answer: Real GDP will fall

(c) Full employment output = $230.

Y = AE

Y = C + I + G + Xn

Y = 170 + 60 + 30 + (-10)

Y = $250.

Current output = $250.

The current output is higher than the full-employment output. It implies that there is an inflationary expenditure gap and employment levels are above the full-employment level.

Answer: there is an inflationary expenditure gap and employment levels are above the full-employment level.

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Answer 2

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