The following graph shows the planned expenditure line (AE) for an economy where current equilibrium income is $400 billion and full-employment income is $650 billion. (? 800 45-degree line 700 PE 600 PE 500 400 300 200 100 Full-Employment Income 100 200 300 400 500 600 700 800 INCOME (Billions of dollars) The economy is experiencing v with the absolute value of the gap equal to $ billion. Closing the income gap would require a $ billion in government spending. Thus the value of the multiplier for this economy is REAL EXPENDIT URE (Billions of dollars)

Brief Principles of Macroeconomics (MindTap Course List)
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Author:N. Gregory Mankiw
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Chapter7: Production And Growth
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5. Expenditure gaps
The following graph shows the planned expenditure line (AE) for an economy where current equilibrium income is $400 billion and full-employment
income is $650 billion.
800
45-degree line
700
PE
600
PE
500
400
300
200
100
Full-Employment Income
100
200
300
400
500
600
700
800
INCOME (Billions of dollars)
The economy is experiencing
with the absolute value of the gap equal to $
billion. Closing the income gap
would require a $
billion
in government spending. Thus the value of the multiplier for this economy is
On the graph, shift the PE line to show the change in the planned expenditure line necessary to close the income gap.
REAL EXPENDIT URE (Billions of dollars)
Transcribed Image Text:5. Expenditure gaps The following graph shows the planned expenditure line (AE) for an economy where current equilibrium income is $400 billion and full-employment income is $650 billion. 800 45-degree line 700 PE 600 PE 500 400 300 200 100 Full-Employment Income 100 200 300 400 500 600 700 800 INCOME (Billions of dollars) The economy is experiencing with the absolute value of the gap equal to $ billion. Closing the income gap would require a $ billion in government spending. Thus the value of the multiplier for this economy is On the graph, shift the PE line to show the change in the planned expenditure line necessary to close the income gap. REAL EXPENDIT URE (Billions of dollars)
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