Points where the aggregate expenditure (AE) curve lie above the 45∘ line are points where aggregate planned expenditure is
A) greater than real GDP.
B) less than real GDP.
C) equal to real GDP.
D) the inverse of real GDP.
E) not related to real GDP.

Question

Quizplus · Accepted Answer

At points where the AE curve lies above the 45∘ line, the aggregate planned expenditure is greater than the current level of real GDP. This indicates that there is an excess demand in the economy, and there will be upward pressure on prices and output in the short run. Therefore, the best choice is (A).

Points Where the Aggregate Expenditure (AE) Curve Lie Above the 45∘