Where does equilibrium occur in an income expenditure diagram? What would be the effect if production is at either on the left or right side of the equilibrium point?
Equilibrium occurs at appoint at which the aggregate demand curve intersects the 45° line. To the left of the equilibrium point, the expenditure line lies above the 45° line. This means that total spending exceeds total output. Hence, inventories will be falling and firms will conclude that they should increase production. Thus, production will rise toward the equilibrium point. The opposite is true to the right of the equilibrium point. Here spending falls short of output, inventories rise, and firms will cut back production.
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The recession phase of the business cycle is typically associated with higher ________ and lower ________.
A. income; real GDP B. employment; income C. real GDP; unemployment D. unemployment; output
In economics, the true cost of making a choice is the value of what must be given up.
Answer the following statement true (T) or false (F)
Expansionary fiscal policy can cause a rise in real GDP in combination with
A. an increase in the price level. B. a decrease in the price level. C. no change in the price level. D. a decrease in the price level if the aggregate supply curve is upward sloping.
Which of the following is true of an expansionary fiscal policy? a. It increases the level of aggregate demand. b. It reduces the market rate of interest
c. It reduces the volume of net exports. d. It facilitates a balanced budget.