# Quiz 9: Demand-Side Equilibrium: Unemployment or Inflation

Using the information given in Table (2), the following graph is drawn to derive the equilibrium level of GDP. Figure - 1 In Figure (1), GDP is measured on horizontal axis and consumption expenditure is measured on vertical axis. The plotted line of GDP and consumption expenditure combination intersects the 45-degree line at e₁ where both GDP and domestic expenditure are at \$3,800. Hence, the equilibrium level of GDP is \$3,800. Since the investment increased to \$260, the consumption expenditure has changed. The consumption expenditure can be written as follows: ……(2) Table (3) shows the consumption expenditure schedule. Table - 3 After increasing the investment level, the equilibrium level of GDP and consumption expenditure is changed. The new equilibrium level of GDP and consumption expenditure is plotted in Figure (2). Figure - 2 In Figure (2), GDP is measured on horizontal axis and consumer expenditure is measured on vertical axis. Increase in investment level shifts the consumption expenditure from to . Hence, the new equilibrium point is obtained at , where consumption expenditure is equal to the level of GDP, and it intersects the 45-degree line. The \$20 (from \$240 to \$260) increase in investment increases the equilibrium level of GDP to \$200 (\$3,800 to \$4,000).