**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.

Since you have posted multiple questions, we will provide the solution only to the first question as…

Answered: True or False. If spending exceeds…

Business

Economics

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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: John Maynard Keynes created the aggregate expenditures model based primarily on what historical…

A: Keynesian economics is a demand side theory which considers the changes in the economy over short…

Q: For all points below the 45 degree line, planned aggregate expenditure will be less than GDP. True…

A: Planned aggregate expenditure is the sum of consumption, planned investment, government spending,…

Q: The Role of the Consumption Function

A: Consumption function is defined as C= c+bY Where c is autonomous consumption ie the amount which…

Q: Criticize Keynes in two points on the equality between savings and investment.

A: The Keynesian model assumes that in the short run the prices of the goods are constant and the…

Q: Based on what you know about events in Europe after World War I, why does Keynes say the social and…

A: England was having more government and democratic system than other european countries after world…

Q: All else the same, if individuals decrease their consumption spending then GDP will grow more…

A: The gross domestic product is found out by: GDP = Consumption + Investment + Government Expenditure…

Q: Rosalind won $1000 cash in a lucky draw. Find her marginal propensity to consume if she spent $600…

A: Marginal propensity to consume(MPC) calculates the proportion of extra income which is spent on…

Q: When households in the United States have more income to spend, they increase their consumption…

A: Answer: True, Explanation: Net export refers to the difference between export and import (Net…

Q: Using more data points results in an estimated MPC of 0.65 for Africa. In December, the Africa…

A: How much investment going to multiply in the economy depends on how much the household sector…

Q: Which one of the following is most likely to cause stagflation? Group of answer choices An increase…

A: Stagflation is a scenario characterized via a mixture of stagnant economic growth, excessive…

Q: A change in the price level will cause a shift in the expenditure schedule. True or False

A: Answer to the question is as follows :

Q: In a closed economy model without government spending, aggregate demand is the sum of... a. Savings…

A: Aggregate Demand is the total value of goods and services in a given period of time and at given…

Q: In a two sector economy, aggregate demand is a function of _________ and __________

A: The concept of two sector Economy, pays attention to mainly two components of the society which are…

Q: The government announces a cut in the income tax rate. (a) Explain the multiplier effect by…

A: The government announces a cut in the income tax rate.

Q: Find the consumption expenditure when, National income = 6000 Autonomous comsumption = 1300…

A: Consumption Expenditure is defined as spending by the households over the goods and services, that…

Q: Suppose MPC = 0.8 and government spending increases by 1 trillion dollars. In the AD-AS equilibrium,…

A: The macroeconomic equilbrium in an economy is determined by the aggregate demand and aggregate…

Q: if actual real GDP is greater than the equilibrium level of real gdp what happens to restore…

A: In economics, the final demand domestically can be defined as the total demand for final services…

Q: When more people qualify for unemployment insurance, which components of planned aggregate…

A: Unemployment insurance refers to a government program that usually provides financial assistance to…

Q: When savings equals investment, reducing savings and increasing consumption is especially effective…

A: true there are three things to consider about relationship between savings and economic cycle 1…

Q: When the economy is in equilibrium it must be true that Select an answer and submit. For keyboard…

A: In an economy, an equilibrium refers to the level at which an economy or a market operates…

Q: What combination would most likely cause a shift from AD1 to AD2? Multiple Choice An increase in…

A: Aggregate demand shows different levels of output demanded at different price levels.

Q: Suppose the government increases taxes by $140 billion and the marginal propensity to consume is…

A: The tax multiplier determines the change in gross domestic product (GDP) when there is any changes…

Q: An economy has the potential to produce $230 billion worth of goods and services. Government…

A: An economy has the potential to produce = $230 billion actuall production = $196 billion

Q: In a closed economy, the MPC is 0.50. Government spending changes by - 400. The change in…

A: Aggregate demand is the sum of Consumption, Investment , government spending , and net export =>…

Q: John Maynard Keynes was the first to show that government policy could be used to change aggregate…

A: John Maynard Keynes is considered to be the most important and popular economist of the early…

Q: In an economy the marginal propensity to consume is 0.9 and increase in investment is of 100 million…

A: Below is the given values: The marginal Propensity consume = 0.9 Increase in investment = 100…

Q: If the government runs a trade surplus, a fiscal deficit, and savings remain unchanged, what will…

A: Gross Domestic Product or GDP is a statistical measure used to calculate the total money value of…

Q: What are the costs associated with large volatility in GDP? bouts of low taxes and high…

A: Gross Domestic Product (GDP) refers to the value of all the goods and services produced inside the…

Q: Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an…

A: A ‘short-run equilibrium’ is the term rise from "economic equilibrium" refers to a situation in…

Q: The country is experiencing a serious rise in inflation which the government wants to control…

A: Gross domestic product is the market value of all goods and services produced in the economy in a…

Q: Suppose real GDP exceeds potential real GDP. If the government decreases its expenditures on goods…

A: GDP is the sum of the value of all the goods and services produced within the geographical borders…

Q: overnments attempt to stimulate economies by offering firms temporary investment tax credits.…

A: Tax credits are the subsidy in taxes provided by the government.

Q: If the MPC is 0.8 and the investment in a country increases by $900 billion calculate the total…

Q: Inflationary GDP is the amount by which equilibrium real GDP falls short of the full employment…

A: Inflationary gap is said to exists when the aggregate expenditure exceeds the full employment real…

Q: What is the effect of leakages and injections in the level of economic activity.

A: There are several variables and components in an economy that define some or the other purpose and…

Q: How much more output does the $20 trillion U.S economy produce when GDP increases by 1.0 percent?

A: Output – it the total amount of commodities or services produced in a particular time period.…

Q: How do you recommend the government change GDP and taxes to stabilize the economy in each of the…

A: In an economy, government intervenes at the marketplace with its economic policies to deal with the…

Question

### 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.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Q&A guidelines

VIEW

Step 2: Explanation

VIEW

Solution

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

You have the following information. Calculate equilibrium GDP and enter your number in the box below. C = 200 + 0.75YD | = 800 G = 600 The government has a balanced budget.
Are the gains achieved or losses incurred by delaying consumption?
Which of the following will increase consumption spending? Group of answer choices a housing market crash an increase in the personal income tax rate a boom in the stock market an increase in the nominal interest rate
"In the classical model, the equilibrium level of real Gross Domestic Product (GDP) is completely supply-determined." Do you agree or disagree? Why?
If actual GDP is $640 billion and there is a positive GDP gap of $20 billion, potential GDP is
In the classical model, what are the effects of an increase in government spending?
if inventories are increasing, what part of the business cycle could we be entering? Group of answer choices Depression Peak Recession Expansion
Three major flows in an economy are; production, money and spending. Select one: True False
If when real GDP equals $800 billion, imports equal $100 billion, and when real GDP equals $900 billion, imports equal $110 billion, then what is the marginal propensity to import? Enter the answer in decimal form, rounded to one decimal place. marginal propensity to import:
The marginal propensity to consume is: the amount of consumption at a specific level of income. the fraction of a change in income that is consumed or spent. a change in saving divided by a change in consumption. consumption times income.
1. Key facts about economic fluctuations The graph included below approximates United States business cycles between quarter one of 1947 and quarter three of 1951. The shaded region denotes periods of six or more consecutive months of declining real gross domestic product (real GDP). REAL GDP (Billions of dollars) 2170 2070 1970 1870 1770 1947 1948 1949 YEAR 1950 1951 ?
What would cause domestic investment to go down? a decrease in interest rates none of the answers given is correct an increase in interest rates.