Answered: 300 270 45° line 240 210 180 150 120…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The graph models an economy in equilibrium with a real GDP of $180 billion. Suppose that consumers' expectations about future incomes change, causing unplanned inventory investment to increase by $30 billion. Shift the planned aggregate expenditure (AE) line to show the effect of this change.

*Image*

1) This change will cause the equilibrium level of real GDP to

a) decrease.

b) remain unchanged.

c) increase.

2) By how much will GDP change once the new equilibrium is reached? If GDP will decrease, be sure to include a negative sign.

GDP change: $ ________ billion

300
270
45° line
240
210
180
150
120
Planned AE
90
60
0
30
60
90
120
150 180 210 240 270
Real GDP (billions of dollars)
300
Planned aggregate spending (billions of dollars)
30

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