The figure given below represents the leakages and injections in an economy.
Figure 10.6

-Refer to Figure 10.6. If 0L represents potential GDP, then the GDP gap can be closed by increasing autonomous expenditures by an amount equal to the line segment _____.

Question

The figure given below represents the leakages and injections in an economy.
Figure 10.6
 
-Refer to Figure 10.6. If 0L represents potential GDP, then the GDP gap can be closed by increasing autonomous expenditures by an amount equal to the line segment _____.

Quizplus · Accepted Answer

The GDP gap is the difference between potential GDP and actual GDP. Increasing autonomous expenditures shifts the aggregate demand curve to the right, closing the GDP gap. The line segment NM represents the horizontal distance between the initial and the new equilibrium on the aggregate demand curve, directly correlating with the increase in expenditures needed to close the gap and reach potential GDP.

The Figure Given Below Represents the Leakages and Injections in an Economy