Diagram 6a

-Diagram 6a indicates that
A) equilibrium income is above full employment.
B) equilibrium income is below full employment.
C) equilibrium income is the same as full employment.
D) equilibrium income is the same as aggregate spending.

Question

Diagram 6a
 
-Diagram 6a indicates that
A) equilibrium income is above full employment. 
B) equilibrium income is below full employment. 
C) equilibrium income is the same as full employment. 
D) equilibrium income is the same as aggregate spending.

Quizplus · Accepted Answer

The intersection point of the 45-degree line and the aggregate expenditure line in diagram 6a indicates the equilibrium income. As we can see, the equilibrium income (Y*) is below the full employment income (Yfe), which means that there is an output gap and the economy is operating below its potential. Therefore, option B is the correct answer. options A, C, and D are not correct.

Diagram 6a -Diagram 6a Indicates That