Use the information in the Table 1 to analyze aggregate expenditures (AE) model below (Figure 1. Equilibrium in a Private Closed Economy) Figure 1. Equilibrium in a Private Closed Economy 45 degree Aggregate Expenditures AE 388 372 356 340 324 308 292 276 260 Real Domestic Output 240 260 280 300 320 340 360 380 400 Table 1 A Private Closed Economy Consumption (billions) Saving (billions) Real domestic Investment Aggregate Expenditures (billions) output (GDP-DI) (billions) (billions) $240 $244 $ -4 $16 $260 276 260 260 0 16 280 276 4 16 292 300 292 8 16 308 320 308 12 16 324 324 340 16 16 340 20 360 340 16 356 380 356 24 16 372 400 372 28 16 388 Recall, private means that there is no government and closed means that there is no foreign trade
The Image attached titled Table 1 is data for a hypothetical private-closed economy.
Use the information in the Table 1 to analyze aggregate expenditures (AE) model attached (Figure 1. Equilibrium in a Private Closed Economy).
Question 1
Identify the mistake and explain why the graph of the aggregate expenditures line does not correctly illustrate the economy's equilibrium.
Question 2
Chart the aggregate expenditures (AE) model in Excel using the data from Table 1: A Private Closed Economy.
Remember, the 45degree line (also known as the Keynesian Cross) is a tool that shows how differences in aggregate expenditures and real
So, the equations for the two are identical:
Y = C + I + G + NX, and AE (aggregate expenditure) = C + I + G + NX
For private closed economy the equation is:
Y = C + I , and AE (aggregate expenditure) = C + I
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