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
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
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
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