Refer to the information provided in Figure 34.1 below to answer the question(s) that follow. Figure 34.1
-Refer to Figure 34.1. If the economy is closed and the government increases spending by 25, the new equilibrium output is

Question

Refer to the information provided in Figure 34.1 below to answer the question(s) that follow.  Figure 34.1
-Refer to Figure 34.1. If the economy is closed and the government increases spending by 25, the new equilibrium output is

Quizplus · Accepted Answer

In a closed economy, the aggregate expenditure (AE) is equal to the output (Y). In the original equilibrium, the AE is 200 at the output level of 200. If the government increases spending by 25, it will increase the AE by 25. This will cause an upward shift of the AE curve from AE1 to AE2. The new equilibrium will occur at the intersection of AE2 and the 45-degree line, which is at an output level of 225 (point B). Therefore, the new equilibrium output is 225.

Refer to the Information Provided in Figure 34