### Question 14#### Diagrams Explanation:**Top Diagram: Expenditure-Income Graph**- **Axes:** - The vertical axis represents "Expenditures, Income" ranging from 0 to 60. - The horizontal axis represents "real GDP = Q" ranging from 0 to 50.- **Lines and Points:** - Three parallel lines labeled AE0, AE*, and AE1 represent different levels of Aggregate Expenditures (AE). - The vertical line at Qf indicates the full-employment level of GDP. - The intersection of AE0 with the expenditure line corresponds to GDP Qe, indicating an equilibrium below full employment. - Dotted line arrows indicate movements from Qe to Q due to changes in AE.**Bottom Diagram: Aggregate Demand and Supply Graph**- **Axes:** - The vertical axis represents "Price level" ranging from 0 to 80. - The horizontal axis represents "real GDP = Q" ranging from 0 to 50.- **Curves:** - AD0 and AD1 are Aggregate Demand curves, with AD1 shifted to the right of AD0. - AS is the upward sloping Aggregate Supply curve. - LRAS is a vertical line representing the Long Run Aggregate Supply at full employment level Qf. - **Intersection Points:** - AD0 intersects AS at point indicating GDP level Qe. - AD1 intersects AS at Qf, signifying a restored equilibrium at full employment.#### Question:14. Which of the following statements accurately explain the scenario illustrated by these diagrams?- **(a)** Assuming AD0 and AE0 are the original positions of the AD and AE curves respectively, the original situation illustrated is a recessionary gap of 10.- **(b)** To restore full-employment equilibrium Aggregate Expenditures must be increased to AE1 which is equivalent to shifting the AD curve to AD1.- **(c)** Because the short-run Aggregate Supply (AS) curve is upward sloping, the shift in AD will be associated with some product price inflation. This will cause the AE curve to decline from AE1 to AE* because of the wealth, interest rate, and trade effects of inflation.- **(d)** All the above.- **(e)** Only (a) and (b) are true.- **(f)** None of the above.The diagrams illustrate

Aggregate demand is the finished goods and services total demand that is produced in the economy. It…

QUESTION 14 Expenditures, Income Price level 60 8 50 40 30 20 10 0 80 70 60 50 40 30 20 10 0 0 Qf 10 Qe Qf o 40 50 LRAS 0 10 Qe20 Qf 30 O (d) All the above. O (e) Only (a) and (b) are true O (f) None of the above. AE1 AE* AEo O real GDP = Q AS AD1 ADO 40 50 real GDP = Q 14. Which of he following statements accurately explain the scenario illustrated by these diagrams? O (a) Assuming ADo and AEo are the original positions of the AD and AE curves respectively, the original situation illustrated is a recessionary gap of 10. Ⓒ (b) To restore full-employment equilibrium Aggregate Expenditures must be increased to AE1 which is equivalent to shifting the AD curve to AD1 O (c) Because the short-run Aggregate Supply (AS) curve is upward sloping, the shift in AD will be associated with some products price inflation. This will cause the AE curve to decline from AE1 to AE* because of the wealth, interest rate, and trade effects of inflation.

QUESTION 14 Expenditures, Income Price level 60 8 50 40 30 20 10 0 80 70 60 50 40 30 20 10 0 0 Qf 10 Qe Qf o 40 50 LRAS 0 10 Qe20 Qf 30 O (d) All the above. O (e) Only (a) and (b) are true O (f) None of the above. AE1 AE* AEo O real GDP = Q AS AD1 ADO 40 50 real GDP = Q 14. Which of he following statements accurately explain the scenario illustrated by these diagrams? O (a) Assuming ADo and AEo are the original positions of the AD and AE curves respectively, the original situation illustrated is a recessionary gap of 10. Ⓒ (b) To restore full-employment equilibrium Aggregate Expenditures must be increased to AE1 which is equivalent to shifting the AD curve to AD1 O (c) Because the short-run Aggregate Supply (AS) curve is upward sloping, the shift in AD will be associated with some products price inflation. This will cause the AE curve to decline from AE1 to AE* because of the wealth, interest rate, and trade effects of inflation.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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