Use the orange line (square symbol) to plot a 45-degree line on this graph. Then use the blue points (circle symbols) to plot the aggregate expenditure line for this economy. Also, use the black point (plus symbol) to indicate the equilibrium output at this price level. ### 6. Aggregate Expenditure and IncomeSuppose the following table shows consumption (\(C\)), investment (\(I\)), government purchases (\(G\)), and net exports (\(NX\)) in a hypothetical economy for various levels of real GDP. Assume that the price level remains unchanged at all levels of real GDP.| Real GDP | \(C\) | \(I\) | \(G\) | \(NX\) ||----------------|--------|--------|--------|--------|| (Billions of dollars) | (Billions of dollars) | (Billions of dollars) | (Billions of dollars) | (Billions of dollars) || 500 | 250 | 250 | 200 | -150 || 600 | 325 | 250 | 200 | -150 || 700 | 400 | 250 | 200 | -150 || 800 | 475 | 250 | 200 | -150 || 900 | 550 | 250 | 200 | -150 |This table helps illustrate the relationship between various economic factors and real GDP within an economy. The components listed are:- **Consumption (\(C\))**: Represents the total value of all goods and services consumed in the economy.- **Investment (\(I\))**: Represents the total spending on capital equipment, inventories, and structures, including household purchases of new housing.- **Government Purchases (\(G\))**: Represents spending on goods and services by local, state, and federal governments.- **Net Exports (\(NX\))**: Represents the value of a nation's exports minus the value of its imports. In this scenario, net exports are consistently negative, indicating that the country imports more than it exports.Understanding how these components interact at different levels of GDP provides insight into the overall economic health and dynamics of an economy. ### Understanding the Aggregate Expenditures Model#### Graph Description:The graph depicts the relationship between Real GDP (Gross Domestic Product) on the x-axis and Aggregate Expenditures on the y-axis, both measured in billions of dollars. Here's an explanation of the graph's components:1. **45-Degree Line:** - **Symbol:** An orange line with a square marker. - **Description:** This line represents points where aggregate expenditures (total spending) equal real GDP (total output). It shows the equilibrium condition where production equals spending.2. **AE Line (Aggregate Expenditures Line):** - **Symbol:** A blue line with a circle marker. - **Description:** This line illustrates the actual aggregate expenditures at different levels of real GDP. It shows how much is being spent when the economy is producing at various levels of output.3. **Equilibrium Output:** - **Symbol:** A black cross marker. - **Description:** The point where the AE Line intersects the 45-Degree Line represents the equilibrium output. At this point, aggregate expenditures equal real GDP, indicating a state of economic equilibrium.#### How to Interpret the Graph:- **Real GDP (Billions of dollars):** The horizontal axis ranges from 400 to 1000 billion dollars, indicating different levels of economic output.- **Aggregate Expenditures (Billions of dollars):** The vertical axis also ranges from 400 to 1000 billion dollars, representing the total amount of spending in the economy.In economic terms:- If the AE Line is above the 45-Degree Line, it suggests that aggregate expenditures are greater than real GDP, leading to unplanned decreases in inventories and prompting businesses to increase production.- If the AE Line is below the 45-Degree Line, it indicates that aggregate expenditures are less than real GDP, causing unplanned increases in inventories and prompting businesses to reduce production.- The equilibrium point, where the two lines intersect, is crucial because it highlights the level of output where the total production in the economy is exactly equal to total spending.Understanding this model helps in analyzing the equilibrium level of national output and income, which is essential for macroeconomic planning and policy formulation.

Real GDP refers to the inflationary adjusted GDP. Real GDP refers to the market value of all the…

Answered: Use the orange line (square symbol) to…

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC