Explain how an equilibrium is achieved in the Keynesian cross diagram
The Keynesian cross diagram has aggregate expenditures on the vertical axis and real GDP as a measure of output on the horizontal axis. A vertical line shows potential GDP or full employment GDP. The 45-degree line shows all points where aggregate expenditures and output are equal. The aggregate expenditure schedule shows how total spending or aggregate expenditure increases as output or real GDP rises. Equilibrium occurs at the point where the aggregate expenditure schedule intersects the 45-degree line. At equilibrium, aggregate expenditure is equal to real GDP.
You might also like to view...
If all goods are essential, a consumer will optimize at an interior solution.
Answer the following statement true (T) or false (F)
A farm can produce 10,000 bushels of wheat per year with 5 workers and 13,000 bushels with 6 workers. The marginal product of the sixth worker for this farm is:
a. 10,000 bushels. b. 3,000 bushels. c. 500 bushels. d. 23,000 bushels.
Babe Ruth, the famous baseball player, earned $80,000 in 1931 . Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931 . However, prices have also risen since 1931 . We can conclude that
a. the best baseball players today are about 400 times better off than Babe Ruth was in 1931. b. because prices have also risen, the standard of living of baseball stars hasn't changed since 1931. c. one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes. d. one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.
A firm should increase its investment as long as:
a. marginal resource cost exceeds the interest rate. b. marginal resource cost exceeds marginal revenue product. c. marginal rate of return on investment exceeds the interest rate. d. the interest exceeds the marginal rate of return on investment.