The figure given below shows the income-expenditure model. At point C, Figure 9.1 Aggregate expenditure (in billion dollars) C+I+G+(X-M) A B Real GDP (in billion dollars) a. producers experience an unexpected accumulation of inventory O b. consumption expenditure exceeds disposable income c. aggregate expenditure is exactly equal to real GDP d. real GDP exceeds aggregate expenditure O e. producers experience an unexpected loss of inventory

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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### Income-Expenditure Model Analysis

#### Figure 9.1: Income-Expenditure Model Graph

The figure below illustrates the income-expenditure model. The graph has "Aggregate expenditure (in billion dollars)" on the y-axis and "Real GDP (in billion dollars)" on the x-axis.

![Income-Expenditure Model](link-to-image)

#### Explanation of Graph:
The graph consists of two lines:
1. A diagonal line representing all points where aggregate expenditure equals real GDP.
2. Another line labeled "C+I+G+(X-M)", which depicts the aggregate expenditure.

Three points, A, B, and C, are marked on the “C+I+G+(X-M)” line:
- Point **A** is situated above the diagonal line.
- Point **B** is also above the diagonal line.
- Point **C** is below the diagonal line.

#### Corresponding Question:
Based on the graph, determine what occurs at point C. Here are the options:

a. Producers experience an unexpected accumulation of inventory.
b. Consumption expenditure exceeds disposable income.
c. Aggregate expenditure is exactly equal to real GDP.
d. Real GDP exceeds aggregate expenditure.
e. Producers experience an unexpected loss of inventory.

**Option d** is correct: At point C, real GDP exceeds aggregate expenditure. This typically implies that producers are producing more goods than are being consumed, leading to an accumulation of unsold inventory.
Transcribed Image Text:### Income-Expenditure Model Analysis #### Figure 9.1: Income-Expenditure Model Graph The figure below illustrates the income-expenditure model. The graph has "Aggregate expenditure (in billion dollars)" on the y-axis and "Real GDP (in billion dollars)" on the x-axis. ![Income-Expenditure Model](link-to-image) #### Explanation of Graph: The graph consists of two lines: 1. A diagonal line representing all points where aggregate expenditure equals real GDP. 2. Another line labeled "C+I+G+(X-M)", which depicts the aggregate expenditure. Three points, A, B, and C, are marked on the “C+I+G+(X-M)” line: - Point **A** is situated above the diagonal line. - Point **B** is also above the diagonal line. - Point **C** is below the diagonal line. #### Corresponding Question: Based on the graph, determine what occurs at point C. Here are the options: a. Producers experience an unexpected accumulation of inventory. b. Consumption expenditure exceeds disposable income. c. Aggregate expenditure is exactly equal to real GDP. d. Real GDP exceeds aggregate expenditure. e. Producers experience an unexpected loss of inventory. **Option d** is correct: At point C, real GDP exceeds aggregate expenditure. This typically implies that producers are producing more goods than are being consumed, leading to an accumulation of unsold inventory.
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