What is illustrated by the distance between the aggregate expenditure line and the 45-degree line at each level of real GDP?
A) saving
B) unplanned inventory change
C) planned investment
D) marginal propensity to consume

Question

What is illustrated by the distance between the aggregate expenditure line and the 45-degree line at each level of real GDP?  
A) saving 
B) unplanned inventory change 
C) planned investment 
D) marginal propensity to consume

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, as it shows the difference between the actual level of output and the level firms intended to produce based on their planned expenditures. When the aggregate expenditure line falls below the 45-degree line, it indicates that firms are overproducing, resulting in unplanned inventory buildup, and when the aggregate expenditure line is above the 45-degree line, it indicates that firms are underproducing, resulting in unplanned inventory depletion.

What Is Illustrated by the Distance Between the Aggregate Expenditure