Exhibit 11-5
-In an economy characterized by the aggregate expenditure line in Exhibit 11-5,what would the equilibrium real GDP be equal to if autonomous net taxes decreased by $100?
A)$400
B)$500
C)$600
D)$700
E)$800

Question

Exhibit 11-5 
-In an economy characterized by the aggregate expenditure line in Exhibit 11-5,what would the equilibrium real GDP be equal to if autonomous net taxes decreased by $100?
A)$400 
B)$500 
C)$600 
D)$700 
E)$800

Quizplus · Accepted Answer

The aggregate expenditure line intersects the 45-degree line at $600 billion, which represents the equilibrium level of real GDP in the economy. If autonomous net taxes decreased by $100, the aggregate expenditure line would shift upward by the multiplier times the change in autonomous net taxes. The multiplier in this case is 2, so the shift in the aggregate expenditure line would be $200 upwards. The new intersection point with the 45-degree line would be at $700 billion, which represents the new equilibrium level of real GDP in the economy. Therefore, the equilibrium real GDP would increase by $100 from $600 billion to $700 billion. The correct answer is D.

Exhibit 11-5 -In an Economy Characterized by the Aggregate Expenditure Line in Expenditure