If the equation for planned aggregate expenditure is given by PAE = 5,000 + 0.9Y and potential output is equal to 48,000,then there is a(n)________ gap equal to ________ units,so if net exports ________ by ________,the economy will return to potential output.

Question

Quizplus · Accepted Answer

The planned aggregate expenditure (PAE) is given by PAE = 5,000 + 0.9Y. Potential output is equal to 48,000. So, the equilibrium level of output is Y = 48,000. The actual level of output is Y = 46,000. So, there is an expansionary gap of 2,000 units. If net exports decrease by 200 units, then the PAE will decrease by 200 units. This will shift the PAE curve to the left and the equilibrium level of output will decrease to 47,800 units. This will close the expansionary gap and the economy will return to potential output.

If the Equation for Planned Aggregate Expenditure Is Given by PAE