Within the simple Keynesian Cross model, equilibrium takes place:
A) at full employment.
B) when aggregate spending equals real disposable income.
C) when the money interest rate and real interest rate are equal.
D) when actual and expected rates of inflation are equal.

Question

​ Within the simple Keynesian Cross model, equilibrium takes place:
A) ​ at full employment.
B) ​when aggregate spending equals real disposable income.
C) ​when the money interest rate and real interest rate are equal.
D) ​when actual and expected rates of inflation are equal.

Quizplus · Accepted Answer

Within the simple Keynesian Cross model, equilibrium occurs when aggregate spending (which includes consumption, investment, government spending, and net exports) equals real disposable income. This is represented by the point where the aggregate expenditures function intersects with the 45-degree line, which represents the level of output that equals total income. Full employment (choice A) is not necessarily always achieved in this model, as there can be a gap between potential output and actual output. The money interest rate and real interest rate (choice C) are not directly related to equilibrium in the Keynesian Cross model. Actual and expected rates of inflation (choice D) are not relevant to this model.

​ Within the Simple Keynesian Cross Model, Equilibrium Takes Place

Within the Simple Keynesian Cross Model, Equilibrium Takes Place