Which of the following is correct? I thought the 45 degree line symolized when o

Question

Which of the following is correct? I thought the 45 degree line symolized when output = expendatures. Or is that the same as aggregate demand = aggregate supply?

The 45 degree line drawn to find the demand side equilibrium

a) Shows all points at which the aggregate demand is equal to aggregate supply.

b) Shows all points at which the general price level is equal to the total expenditures.

c) Is below the expenditure line if the economy produces more than the equilibrium GDP.

d) Is above the expenditure line if the economy produces less than the equilibrium GDP.

e) None of the above.

Explanation / Answer

The Keynesian Model indicates the 45-degree line and the aggregate expenditure line to show the attainment of macroeconomic equilibrium.

The intersection point of 45-degree line and aggregate expenditure line represents macro-economic equilibrium of the economy as per the Keynesian Model.

The 45 degree line is drawn by takeing the aggregate expenditure (aggregate demand) on vertical axis and aggregate production (aggregate supply) on horizontal axis.

Each point on 45 degree line indicates that equality of aggregate demand and aggregate supply.

Thus,

The 45 degree line drawn to fund the demand side equilibrium shows all points at which aggregate demand is equal to the aggregate supply.

Hence, the correct answer is the option (a).

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.