The figure given below shows the aggregate expenditure curve of an open economy.
Figure 10.1
In the figure:
C 1 : Consumption
I 1 : Investment
G 1 : Government spending
X 1 : Net Exports
-Consider the economy described in Figure 10.1. Which of the following is true if the real GDP is equal to 0H?

Question

The figure given below shows the aggregate expenditure curve of an open economy.
Figure 10.1
  In the figure:
C 1 : Consumption
I 1 : Investment
G 1 : Government spending
X 1 : Net Exports
-Consider the economy described in Figure 10.1. Which of the following is true if the real GDP is equal to 0H?

Quizplus · Accepted Answer

At point 0H, the aggregate expenditure curve intersects the vertical axis, indicating that there is no real GDP. This means that firms are producing less than what households want to spend (consumption, investment, government spending, and net exports). As a result, firms will accumulate unwanted inventories, leading to a decline in unplanned investment. Therefore, option D is the correct answer. Options A and C are incorrect because with zero real GDP, total income is also zero, and there is no scope for aggregate expenditure to be greater than total income or for households to dissaving. Option B is also incorrect because if all resources were being used efficiently, the economy would be producing at a higher level of real GDP than 0H.

The Figure Given Below Shows the Aggregate Expenditure Curve of an Open