Difficulty: Medium Figure 13-4
-Refer to Figure 13-4. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JI_P = Planned Investment. Suppose AE = C + I_P, and I_P is autonomous. If the level of real GDP equals $7,000 billion, and if there are no changes in the consumption function or in planned investment, then we expect that, in the next period, real GDP will

Question

Difficulty: Medium Figure 13-4

-Refer to Figure 13-4. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JI_P = Planned Investment. Suppose AE = C + I_P, and I_P is autonomous. If the level of real GDP equals $7,000 billion, and if there are no changes in the consumption function or in planned investment, then we expect that, in the next period, real GDP will

Quizplus · Accepted Answer

If AE = C + I_P and I_P is autonomous, then if real GDP equals $7,000 billion and there are no changes in the consumption function or planned investment, the economy is likely not at equilibrium. If AE is less than Y, inventories will rise, leading firms to reduce production, causing real GDP to fall in the next period.