**Economics Question***True or False:* If spending exceeds output, real GDP will decline as firms cut back on production.[Dropdown Menu] ### Aggregate Expenditures Model: Closed Economy**Overview:**The diagram presented is an aggregate expenditures model, illustrating the relationship between consumption, investment spending, government spending, and real GDP within a closed economy. This model is designed to showcase the effect of a $500 increase in government spending.**Instructions:**Click and drag on the expenditure line to adjust it to the correct position reflective of the $500 addition in government spending.**Graph Explanation:**#### Diagram Details:- **Title:** A Closed Economy- **Y-Axis:** Aggregate Expenditures (billions) - Scale: Ranges from 10,000 to 18,000 billion dollars.- **X-Axis:** Real GDP (billions) - Scale: Ranges from 10,000 to 16,000 billion dollars. - Labeled points for Real GDP include 13,080 and 13,500.- **Lines:** - **45° Line:** The gray line represents the point where aggregate expenditures equal real GDP. - **Initial Expenditure Line (C + I_g + G):** The blue line represents the initial expenditure level.- **Intersection Point:** - The initial equilibrium point (A) is located where the blue line intersects the 45° line near a Real GDP of 13,000 billion dollars and aggregate expenditures of about 13,200 billion dollars.**Interactive Element:**- Click and drag the blue expenditure line to reflect the $500 increase in government spending.**Instruction Follow-up:**Looking at your adjusted graph, determine whether the equilibrium GDP has increased, decreased, or stayed the same given the size of the government purchases that you selected.Equilibrium GDP has ________ by $________.---By following these instructions and understanding the graph's components, users can visually grasp the impact of government spending on aggregate expenditures and the resulting changes in equilibrium GDP within a closed economy.

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True or False. If spending exceeds output, real GDP will decline as firms cut back on production.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

### Aggregate Expenditures Model: Closed Economy

**Overview:**
The diagram presented is an aggregate expenditures model, illustrating the relationship between consumption, investment spending, government spending, and real GDP within a closed economy. This model is designed to showcase the effect of a $500 increase in government spending.

**Instructions:**
Click and drag on the expenditure line to adjust it to the correct position reflective of the $500 addition in government spending.

**Graph Explanation:**

#### Diagram Details:
- **Title:** A Closed Economy
- **Y-Axis:** Aggregate Expenditures (billions)
- Scale: Ranges from 10,000 to 18,000 billion dollars.
- **X-Axis:** Real GDP (billions)
- Scale: Ranges from 10,000 to 16,000 billion dollars.
- Labeled points for Real GDP include 13,080 and 13,500.
- **Lines:**
- **45° Line:** The gray line represents the point where aggregate expenditures equal real GDP.
- **Initial Expenditure Line (C + I_g + G):** The blue line represents the initial expenditure level.
- **Intersection Point:**
- The initial equilibrium point (A) is located where the blue line intersects the 45° line near a Real GDP of 13,000 billion dollars and aggregate expenditures of about 13,200 billion dollars.

**Interactive Element:**
- Click and drag the blue expenditure line to reflect the $500 increase in government spending.

**Instruction Follow-up:**
Looking at your adjusted graph, determine whether the equilibrium GDP has increased, decreased, or stayed the same given the size of the government purchases that you selected.

Equilibrium GDP has ________ by $________.

---

By following these instructions and understanding the graph's components, users can visually grasp the impact of government spending on aggregate expenditures and the resulting changes in equilibrium GDP within a closed economy.

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