**5. Expenditure Gaps**The following graph shows the planned expenditure line (AE) for an economy where the current equilibrium income is $350 billion and full-employment income is $100 billion.**Graph Explanation:**- **Axes:** - The horizontal axis represents INCOME in billions of dollars, ranging from 0 to 700. - The vertical axis represents REAL EXPENDITURE in billions of dollars, also ranging from 0 to 700.- **Lines:** - The **45-degree line** (black) represents a situation where expenditure equals income. - The **PE (Planned Expenditure) line** (blue) indicates the current level of planned expenditure in the economy. - A **vertical green line** is marked at the $100 billion income level to indicate full-employment income.**Text Below the Graph:**The economy is experiencing a _________ 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 _________.*Instruction:*On the graph, shift the PE line to show the change in the planned expenditure line necessary to close the income gap.

Aggregate demand refers to the total demand for goods and services in an economy at a given price…

5. Expenditure Gaps The following graph shows the planned expenditure line (AE) for an economy where current equilibrium income is $350 billion and full-employment income is $100 billion. REAL EXPENDITURE (Billions of dollars) 700 600 500 400 300 200 100 Full-Employment Income 0 0 100 500 200 400 INCOME (Billions of dollars) The economy is experiencing would require a $ 300 45-degree line billion 600 PE 700 PE billion. Closing the income gap with the absolute value of the gap equal to $ 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.

5. Expenditure Gaps The following graph shows the planned expenditure line (AE) for an economy where current equilibrium income is $350 billion and full-employment income is $100 billion. REAL EXPENDITURE (Billions of dollars) 700 600 500 400 300 200 100 Full-Employment Income 0 0 100 500 200 400 INCOME (Billions of dollars) The economy is experiencing would require a $ 300 45-degree line billion 600 PE 700 PE billion. Closing the income gap with the absolute value of the gap equal to $ 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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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