In a simple macro model with demand-determined output,the equilibrium level of national income is at an income
A)to the left of the point where the AE curve intersects the 45-degree line.
B)where the AE curve intersects the 45-degree line.
C)to the right of the point where the AE curve intersects the 45-degree line.
D)where saving equals consumption.
E)where saving equals income.

Question

Quizplus · Accepted Answer

In a demand-determined model, equilibrium output occurs where aggregate expenditure (AE) intersects the 45-degree line (representing income). At this point, income equals expenditure, meaning that there is no unplanned accumulation of inventories and the macroeconomy is in a state of balance. Therefore, choice B (where the AE curve intersects the 45-degree line) is the correct answer. Choices A, C, D, and E do not accurately describe the equilibrium level of national income in a demand-determined model.

In a Simple Macro Model with Demand-Determined Output,the Equilibrium Level