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)

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
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Chapter1: Making Economics Decisions
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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.

#### Graph Explanation
- **Vertical Axis (Y-axis):**
  - Labeled as "REAL EXPENDITURE (Billions of dollars)"
  - Scale ranges from 0 to 800 in increments of 100 billion dollars.

- **Horizontal Axis (X-axis):**
  - Labeled as "INCOME (Billions of dollars)"
  - Scale ranges from 0 to 800 in increments of 100 billion dollars.

- **45-Degree Line:**
  - Represented by a black line originating from the origin and extending at a 45-degree angle. This line indicates points where income equals expenditure.

- **Planned Expenditure (PE) Line:**
  - Represented by a blue line that slopes upward, showing the relationship between income and planned expenditure.

- **Full-Employment Income:**
  - Indicated by a vertical green line at $650 billion on the income axis.

#### Text Explanation
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 ___________.

*Instructions: On the graph, shift the PE line to show the change in the planned expenditure line necessary to close the income gap.*
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. #### Graph Explanation - **Vertical Axis (Y-axis):** - Labeled as "REAL EXPENDITURE (Billions of dollars)" - Scale ranges from 0 to 800 in increments of 100 billion dollars. - **Horizontal Axis (X-axis):** - Labeled as "INCOME (Billions of dollars)" - Scale ranges from 0 to 800 in increments of 100 billion dollars. - **45-Degree Line:** - Represented by a black line originating from the origin and extending at a 45-degree angle. This line indicates points where income equals expenditure. - **Planned Expenditure (PE) Line:** - Represented by a blue line that slopes upward, showing the relationship between income and planned expenditure. - **Full-Employment Income:** - Indicated by a vertical green line at $650 billion on the income axis. #### Text Explanation 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 ___________. *Instructions: On the graph, shift the PE line to show the change in the planned expenditure line necessary to close the income gap.*
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