Figure 8.1 Alt text for Figure 8.1: In figure 8.1, a graph comparing real GDP and real aggregate expenditure.
Long description for Figure 8.1: The x-axis is labelled, real GDP, Y (trillions of 2002 dollars).The y-axis is labelled, real aggregate expenditure, AE (trillions of 2002 dollars).A line, labelled Y = AE, originates at the vertex and slopes up to the top right corner.Another line, labelled AE1, begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Both these lines intersect at point K, approximately three quarters of the way along both lines.Point J is plotted a little less than half way along the line AE1, to the left of point K.Point L is plotted close to the right end of the line AE1, to the right of point K.
-Refer to Figure 8.1.If the economy is at a level of aggregate expenditure given by point K,
A)the economy is in equilibrium.
B)production is greater than spending.
C)production is less than spending.
D)inventories will increase above their desired level.
E)firms will have an incentive to increase production.

Question

Figure 8.1  Alt text for Figure 8.1: In figure 8.1, a graph comparing real GDP and real aggregate expenditure.
Long description for Figure 8.1: The x-axis is labelled, real GDP, Y (trillions of 2002 dollars).The y-axis is labelled, real aggregate expenditure, AE (trillions of 2002 dollars).A line, labelled Y = AE, originates at the vertex and slopes up to the top right corner.Another line, labelled AE1, begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Both these lines intersect at point K, approximately three quarters of the way along both lines.Point J is plotted a little less than half way along the line AE1, to the left of point K.Point L is plotted close to the right end of the line AE1, to the right of point K.
-Refer to Figure 8.1.If the economy is at a level of aggregate expenditure given by point K,
A)the economy is in equilibrium. 
B)production is greater than spending. 
C)production is less than spending. 
D)inventories will increase above their desired level. 
E)firms will have an incentive to increase production.

Quizplus · Accepted Answer

Point K represents the intersection of the Y = AE line and the AE1 line, which indicates that at this point, real GDP and real aggregate expenditure are equal. This implies that there is no excess supply or demand in the economy, and therefore, the economy is in equilibrium.

Figure 81 Alt Text for Figure 8