Refer to the accompanying figure. Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals ________ and induced expenditure equals ________.
A)1,000; 3,000
B)1,000; 4,000
C)3,000; 4,000
D)4,000; 2,000

Question

Refer to the accompanying figure.  Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals ________ and induced expenditure equals ________.
A)1,000; 3,000 
B)1,000; 4,000 
C)3,000; 4,000 
D)4,000; 2,000

Quizplus · Accepted Answer

Short-run equilibrium output occurs where PAE crosses the 45-degree line, which occurs at output level 4,000. At that output, autonomous expenditure equals 1,000 (the vertical intercept of PAE )and induced expenditure equals the rest, or 0.75 × 4,000 = 3,000.

Refer to the Accompanying Figure