In the Keynesian cross, macroeconomic equilibrium occurs where:
A)real GDP is below the aggregate expenditure line.
B)potential GDP meets the 45-degree line.
C)aggregate expenditure line meets the 45-degree line.
D)aggregate expenditure line is below the 45-degree line.

Question

Quizplus · Accepted Answer

The Keynesian cross model shows the relationship between aggregate expenditure and real GDP. The equilibrium level of GDP is where the aggregate expenditure line intersects the 45-degree line, which represents potential GDP. Therefore, the correct answer is C, where the aggregate expenditure line meets the 45-degree line.

In the Keynesian Cross, Macroeconomic Equilibrium Occurs Where