If planned aggregate expenditure (PAE )in an economy equals 3,000 + 0.75Y and potential output (Y*)equals 12,000, then this economy has:
A)an expansionary gap.
B)a recessionary gap.
C)no output gap.
D)no autonomous expenditure.

Question

Quizplus · Accepted Answer

Equilibrium occurs where PAE equals Y. In this economy, (3,000 + 0.75Y)= Y, so Y = 12,000. Since Y* = 12,000 and actual output equals potential output, there is no output gap.

If Planned Aggregate Expenditure (PAE )In an Economy Equals 3,000