The aggregate expenditure line, along with the 45-degree line, determines equilibrium.What assumption is this model based on?
A) that production is constant
B) that production is constant and at the full employment level of GDP
C) that producers are ready to supply whatever amount of output is demanded at the existing price level
D) that producers will supply more at higher prices than they will at lower prices

Question

The aggregate expenditure line, along with the 45-degree line, determines equilibrium.What assumption is this model based on?  
A) that production is constant 
B) that production is constant and at the full employment level of GDP 
C) that producers are ready to supply whatever amount of output is demanded at the existing price level 
D) that producers will supply more at higher prices than they will at lower prices

Quizplus · Accepted Answer

The aggregate expenditure model assumes that producers are willing to supply whatever amount of goods and services is demanded at the current price level, meaning production adjusts to meet the aggregate demand. This is key for determining the equilibrium in the model, where aggregate expenditure equals total production.

The Aggregate Expenditure Line, Along with the 45-Degree Line, Determines