Exhibit 10-4
-In Exhibit 10-4,assume the economy is in equilibrium with real GDP of $5 trillion dollars.If aggregate expenditure (AE)increases by $1 trillion,we would expect the economy's equilibrium real GDP to

Question

Exhibit 10-4 
-In Exhibit 10-4,assume the economy is in equilibrium with real GDP of $5 trillion dollars.If aggregate expenditure (AE)increases by $1 trillion,we would expect the economy's equilibrium real GDP to

Quizplus · Accepted Answer

According to the expenditure multiplier formula, the change in equilibrium real GDP is equal to the initial change in aggregate expenditure multiplied by the multiplier. Assuming the marginal propensity to consume (MPC) is positive, the multiplier will be greater than 1, meaning the change in equilibrium real GDP will be greater than the initial change in aggregate expenditure. Therefore, an increase in AE by $1 trillion would result in an increase in equilibrium real GDP of more than $1 trillion.

Exhibit 10-4 -In Exhibit 10-4,assume the Economy Is in Equilibrium with Real