2. Deriving aggregate demand from the income-expenditure model Aa Aa The blue li

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2. Deriving aggregate demand from the income-expenditure model Aa Aa The blue line (with a positive intercept) on the following graph shows an economy's planned aggregate spending line when the price level is 130 and the level of planned investment is $60 billion. The orange line (which starts in the bottom left corner) is a 45-degree line illustrating the set of points for which real GDP and planned aggregate spending are equal. You can assume for the purposes of this problem that planned investment, government purchases, and net exports are all autonomous At any time in this problem, you can click the Reset to Initial Values button to return the elements in the calculator to their original positions. You will not be graded on any changes to the calculator; it's just here to help you answer the following question:s Tool tip: Use your mouse to drag the green line on the graph. The values in the boxes in the calculator on the right side of the graph will change accordingly. You can also directly change the values in the boxes with the white background by clicking in the box and typing. The graph and any related values will change accordingly PLANNED AGG. SPENDING (Billions of dollars) INCOME-EXPENDITURE CALCULATOR 800 700 600 500 Real GDP Billions of dollars 400 Planned Agg. Spending Billions of dollars 400 Real GDP 400 Billions of dollars AE SHIFTERS 300 Price Level 2000 100) 130 200 Planned Investment Billions of dollars 60 100 100 200 300 400 500 600 700 800 REAL GDP (Billions of dollars) Reset to Initial ValuesCalculate According to the calculator, the level of equilibrium real GDP at a price level of 130, and with planned investment equal to $60 billion, is

Explanation / Answer

planned aggregate demand line and the 45 degree lne meets at 400 billion. so real gdp is 400 when planned investment is 60 and price level is 130.

when planned investment increases by 50 to 110 then real gdp increases because of shift of AD curve to right by 50 and multiplier can be calculated by how much real gdp increases by increasing investment by 1.

the efect of increase in 50 billion in planned investment is a shift of AD curve by 50.

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