FIGURE 21-3 Refer to Figure 21-3.If national income is Y₁ and the aggregate expenditure function is AE₁,then desired aggregate expenditure A)exceeds income and income will rise. B)exceeds income and income will fall. C)is less than income and income will rise. D)is equal to income and income will not change. E)is less than income and income will fall.

Question

Quizplus · Accepted Answer

According to the figure, the aggregate expenditure function is above the 45-degree line, indicating that desired aggregate expenditure exceeds national income at the given level. This suggests that there is demand-pull inflationary pressure, which would prompt producers to increase output and potentially raise prices. As a result, income will rise in order to equilibrate aggregate expenditure with national income.