When potential real GDP is equal to 70, this economy is in The amount of the shortfall in planned aggregate expenditure is equal to OA. the horizontal distance between potential real GDP and actual real GDP. OB. the amount of potential real GDP. OC. the vertical distance between AE and the 45° line at the level of potential real GDP. OD. the amount of actual real GDP.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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**Text Transcription**

- When potential real GDP is equal to 70, this economy is in [Dropdown Menu].

- The amount of the shortfall in planned aggregate expenditure is equal to:

  - ○ A. the horizontal distance between potential real GDP and actual real GDP.
  - ○ B. the amount of potential real GDP.
  - ○ C. the vertical distance between AE and the 45° line at the level of potential real GDP.
  - ○ D. the amount of actual real GDP.

**Graph Description**

- The graph on the right is a line graph measuring the relationship between Real GDP (on the x-axis, in increments of $10 billion) and Real Aggregate Expenditure, AE (on the y-axis, in increments of $10 billion).

- There are two key lines shown:
  - A **45° line** that represents points where Real GDP equals Real Aggregate Expenditure (Y = AE).
  - A second line representing potential real GDP, with an upward trajectory intersecting the 45° line. The intersection occurs just before the 70 ($700 billion) mark on the Real GDP axis.

- A **dashed vertical line** marks "Potential real GDP" at the 70 mark on the x-axis.

The graph illustrates potential real GDP being greater than actual real GDP, with the intersection indicating equilibrium at a lower level of real GDP compared to potential GDP.
Transcribed Image Text:**Text Transcription** - When potential real GDP is equal to 70, this economy is in [Dropdown Menu]. - The amount of the shortfall in planned aggregate expenditure is equal to: - ○ A. the horizontal distance between potential real GDP and actual real GDP. - ○ B. the amount of potential real GDP. - ○ C. the vertical distance between AE and the 45° line at the level of potential real GDP. - ○ D. the amount of actual real GDP. **Graph Description** - The graph on the right is a line graph measuring the relationship between Real GDP (on the x-axis, in increments of $10 billion) and Real Aggregate Expenditure, AE (on the y-axis, in increments of $10 billion). - There are two key lines shown: - A **45° line** that represents points where Real GDP equals Real Aggregate Expenditure (Y = AE). - A second line representing potential real GDP, with an upward trajectory intersecting the 45° line. The intersection occurs just before the 70 ($700 billion) mark on the Real GDP axis. - A **dashed vertical line** marks "Potential real GDP" at the 70 mark on the x-axis. The graph illustrates potential real GDP being greater than actual real GDP, with the intersection indicating equilibrium at a lower level of real GDP compared to potential GDP.
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