True or False. If spending exceeds output, real GDP will decline as firms cut back on production.

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**Economics Question**

*True or False:* If spending exceeds output, real GDP will decline as firms cut back on production.

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Transcribed Image Text:**Economics Question** *True or False:* If spending exceeds output, real GDP will decline as firms cut back on production. [Dropdown Menu]
### Aggregate Expenditures Model: Closed Economy

**Overview:**
The diagram presented is an aggregate expenditures model, illustrating the relationship between consumption, investment spending, government spending, and real GDP within a closed economy. This model is designed to showcase the effect of a $500 increase in government spending.

**Instructions:**
Click and drag on the expenditure line to adjust it to the correct position reflective of the $500 addition in government spending.

**Graph Explanation:**

#### Diagram Details:
- **Title:** A Closed Economy
- **Y-Axis:** Aggregate Expenditures (billions)
  - Scale: Ranges from 10,000 to 18,000 billion dollars.
- **X-Axis:** Real GDP (billions)
  - Scale: Ranges from 10,000 to 16,000 billion dollars.
  - Labeled points for Real GDP include 13,080 and 13,500.
- **Lines:**
  - **45° Line:** The gray line represents the point where aggregate expenditures equal real GDP.
  - **Initial Expenditure Line (C + I_g + G):** The blue line represents the initial expenditure level.
- **Intersection Point:** 
  - The initial equilibrium point (A) is located where the blue line intersects the 45° line near a Real GDP of 13,000 billion dollars and aggregate expenditures of about 13,200 billion dollars.

**Interactive Element:**
- Click and drag the blue expenditure line to reflect the $500 increase in government spending.

**Instruction Follow-up:**
Looking at your adjusted graph, determine whether the equilibrium GDP has increased, decreased, or stayed the same given the size of the government purchases that you selected.

Equilibrium GDP has ________ by $________.

---

By following these instructions and understanding the graph's components, users can visually grasp the impact of government spending on aggregate expenditures and the resulting changes in equilibrium GDP within a closed economy.
Transcribed Image Text:### Aggregate Expenditures Model: Closed Economy **Overview:** The diagram presented is an aggregate expenditures model, illustrating the relationship between consumption, investment spending, government spending, and real GDP within a closed economy. This model is designed to showcase the effect of a $500 increase in government spending. **Instructions:** Click and drag on the expenditure line to adjust it to the correct position reflective of the $500 addition in government spending. **Graph Explanation:** #### Diagram Details: - **Title:** A Closed Economy - **Y-Axis:** Aggregate Expenditures (billions) - Scale: Ranges from 10,000 to 18,000 billion dollars. - **X-Axis:** Real GDP (billions) - Scale: Ranges from 10,000 to 16,000 billion dollars. - Labeled points for Real GDP include 13,080 and 13,500. - **Lines:** - **45° Line:** The gray line represents the point where aggregate expenditures equal real GDP. - **Initial Expenditure Line (C + I_g + G):** The blue line represents the initial expenditure level. - **Intersection Point:** - The initial equilibrium point (A) is located where the blue line intersects the 45° line near a Real GDP of 13,000 billion dollars and aggregate expenditures of about 13,200 billion dollars. **Interactive Element:** - Click and drag the blue expenditure line to reflect the $500 increase in government spending. **Instruction Follow-up:** Looking at your adjusted graph, determine whether the equilibrium GDP has increased, decreased, or stayed the same given the size of the government purchases that you selected. Equilibrium GDP has ________ by $________. --- By following these instructions and understanding the graph's components, users can visually grasp the impact of government spending on aggregate expenditures and the resulting changes in equilibrium GDP within a closed economy.
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