4. Draw a very neat and clearly labeled graph of the 45 degree-line like we did

Question

4. Draw a very neat and clearly labeled graph of the 45 degree-line like we did in class. This is called the “Keynesian cross”: it is a graph where the two axes represent real GDP (supply) and real aggregate expenditure (demand).

(a) On your graph, you should have a 45 degree-line together with a line that represents aggregate expenditures (A.E.) for your macroeconomy. On the horizontal axis, identify three unique levels of real GDP:

(i) a point where real GDP is less than A.E. (label this as Point A);
(ii) a point where real GDP is equal to A.E. (label this as Point B); and,
(iii) a point where real GDP is greater than A.E. (label this as Point C).

(b) From these three possible levels of real GDP, which one represents the point where our economy is in the recessionary phase of the business cycle?

(c) If your economy starts out at the point you identified in part (b), explain how the economy will adjust to reach its true macroeconomic equilibrium where supply = demand. (If you want full points, then your answer should be thorough and involve how inventories change, how production changes, and how we move along the A.E. line.)

Explanation / Answer

http://www.worldscibooks.com/etextbook/7599/7599_chap07.pdf http://www.slideshare.net/mandalina/aggregate-expenditure-and-aggregate-demand http://facstaff.uww.edu/ahmady/courses/econ202/ps/sg5.pdf http://www.mhhe.com/economics/mcconnellmacro15e/graphics/mcconnell15eco/common/key_question_answers_macro.pdf http://www.ih.k12.oh.us/hsslonim/ap_economics/Macro%20Book%20Notes.pdf http://www.ase.tufts.edu/gdae/Pubs/te/MAC/MAC_1E_Study_Guide_Complete.pdf

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.