Use the graph, table, and/or equation above. If GDP is 65, then unplanned investment is positive, and firms respond by increasing production in the future. unplanned investment is positive, and firms respond by decreasing production in the future. unplanned investment is negative, and firms respond by increasing production in the future. unplanned investment is negative, and firms respond by decreasing production in the future. unplanned investment is zero, the economy is at equilibrium, and firms do not change their production in the future. The table on the left displays the relationship between GDP and Aggregate Expenditure:| GDP (billions) | Aggregate Expenditure (billions) ||----------------|----------------------------------|| 60 | 61.8 || 60.5 | 62.1 || 61 | 62.4 || 61.5 | 62.7 || 62 | 63.0 || 62.5 | 63.3 || 63 | 63.6 || 63.5 | 63.9 || 64 | 64.2 || 64.5 | 64.5 || 65 | 64.8 || 65.5 | 65.1 || 66 | 65.4 |The graph on the right illustrates the relationship between GDP and Aggregate Expenditure with two lines:- **Solid Line (Aggregate Expenditure line):** Represents the actual aggregate expenditure values as GDP increases from 60 to 66 billion dollars.- **Dashed Line (Reference line or 45-degree line):** Represents a scenario where Aggregate Expenditure equals GDP, indicating all output is being spent. This line has a slope of 1.The equation for Aggregate Expenditure is given as:\[ AE = 25.8 + 0.6 \times Y \]where \( Y \) is the GDP.This equation shows that when GDP increases by 1 billion, Aggregate Expenditure increases by 0.6 billion, reflecting a marginal propensity to spend. The intercept is 25.8 billion, indicating autonomous expenditure levels when GDP is zero.

an option is incorrect because, with GDP higher than Aggregate expenditure at 65, firms tend to have…

Answered: ns) Expenditure (billions) 65.5 65.0 60…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Use the graph, table, and/or equation above. If GDP is 65, then

		unplanned investment is positive, and firms respond by increasing production in the future.
		unplanned investment is positive, and firms respond by decreasing production in the future.
		unplanned investment is negative, and firms respond by increasing production in the future.
		unplanned investment is negative, and firms respond by decreasing production in the future.
		unplanned investment is zero, the economy is at equilibrium, and firms do not change their production in the future.

The table on the left displays the relationship between GDP and Aggregate Expenditure:

| GDP (billions) | Aggregate Expenditure (billions) |
|----------------|----------------------------------|
| 60 | 61.8 |
| 60.5 | 62.1 |
| 61 | 62.4 |
| 61.5 | 62.7 |
| 62 | 63.0 |
| 62.5 | 63.3 |
| 63 | 63.6 |
| 63.5 | 63.9 |
| 64 | 64.2 |
| 64.5 | 64.5 |
| 65 | 64.8 |
| 65.5 | 65.1 |
| 66 | 65.4 |

The graph on the right illustrates the relationship between GDP and Aggregate Expenditure with two lines:

- **Solid Line (Aggregate Expenditure line):** Represents the actual aggregate expenditure values as GDP increases from 60 to 66 billion dollars.
- **Dashed Line (Reference line or 45-degree line):** Represents a scenario where Aggregate Expenditure equals GDP, indicating all output is being spent. This line has a slope of 1.

The equation for Aggregate Expenditure is given as:
\[ AE = 25.8 + 0.6 \times Y \]
where \( Y \) is the GDP.

This equation shows that when GDP increases by 1 billion, Aggregate Expenditure increases by 0.6 billion, reflecting a marginal propensity to spend. The intercept is 25.8 billion, indicating autonomous expenditure levels when GDP is zero.

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an option is incorrect because, with GDP higher than Aggregate expenditure at 65, firms tend to have a negative unplanned investment to bring their production level and inventory level down, So at this level of GDP, firms will negative unplanned investment and not positive to decrease production.

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