Question

The potential GDP line is a ________ on the Keynesian Cross diagram which indicates GDP at its potential on the horizontal axis.

vertical line

horizontal line

sloping upward line

The pure Keynesian AD-AS model assumes that for any level of GDP below potential, any change in AD affects real GDP, but NOT the ________.

price level

output level

spending level

Suppose an economy is defined by the following: C = 136 + 0.9 (Yd). The (Yd) in this algebraic equation represents the ________.

discretionary income

pre-tax income

disposable income

Equilibrium occurs in the macroeconomy with the income-expenditure model where national income and aggregate expenditure are equal. Where does this equilibrium occur?

Where the aggregate expenditure schedule crosses the real GDP (Y) line.

Where the aggregate expenditure schedule crosses the 45-degree line.

Where the aggregate expenditure schedule crosses the potential GDP line.

What takes place when the economy reaches potential GDP and the aggregate supply becomes vertical?.

The potential GDP is vertical only in the income-expenditure model.

c, The potential GDP is vertical only in both the income-expenditure model and the traditional AD-AS model.

The potential GDP is vertical only the traditional AD-AS model.

Answer 1

1.

vertical line

Potential GDP is a vertical line and it only changes when their are specific technological and productivity changes takes place in the economy.

2.

price level

It does not change.

3.

disposable income

Yd is the disposable income and it is calculated after the deduction of taxes paid.

4.

B

At the intersection point of expenditure line and 45 degree line, equilibrium GDP is achieved.

5.

B