Which of the following is illustrated by the distance between the aggregate expenditure line and the 45-degree line at each level of real GDP?
A) the level of saving in an economy
B) unplanned inventory change
C) planned investment undertaken in an economy
D) the marginal propensity to save
E) the marginal propensity to consume

Question

Quizplus · Accepted Answer

The distance between the aggregate expenditure line and the 45-degree line at each level of real GDP represents unplanned inventory change. This is because the 45-degree line represents equilibrium where aggregate expenditure equals output, and any deviation from this line indicates that either there is an unplanned change in inventory or planned investment is different from actual investment. Therefore, the distance between the two lines represents the unplanned inventory change, which can be positive or negative depending on whether actual investment is higher or lower than planned investment.

Which of the Following Is Illustrated by the Distance Between