Download Power Point: Equilibrium and Multiplier

Chapter 9
Demand Side Equilibrium
DC=MPC*D
National Income :
Wages
Profits
Interest
Rents
Y = 5,000
Y = 10,000
Y = 19,000
C = 22,600
C = 17,200
C = 9,100
AE = 24,400
G=
500
G=
500
I = 1000
AE = 19,000I = 1000
I = 1000
AE = 10,900
= 1000
AE =I 6,400
G=
500
NX=
300
NX=
300
G=
500
NX=
300
AE = C + I + G + NX
C = 4600
NX=
300
AE
Y = 25,000
DC=MPC*D
Increase in National Income
National Income :
Wages
Profits
Interest
Rents
100
Y = 5,000
Y = 10,000
Y = 19,000
C = 22,600
C = 17,200
C = 9,100
G=
500
G=
500
I = 1000
I = 1000
I = 1000
I = 1000
100+1800
1900
C = 4600
G=
500
NX=
300
NX=
300
G=
500
NX=
300
NX=
300
Aggregate
Expenditures
AE
Y = 25,000
AE = Total sales to
consumers, firms,
government and
other countries
24,400
Sold
Produced
19,000
AE5,000
= 1,900 + 0.9 Y
Produced
Produced 10,000
Sold19,000
Sold Sold
6,40010,900
Inventories
do not
change
Inventories
fall
Inventories
fall
Firms
do
not
change
Production
FirmsFirms
increase
Production
increase
Production
19,000
Produced 25,000
Sold 24,400
Inventories rise
Firms decrease
Production
Produced
10,900
6,400
5,000
10,000
19,000 25,000
AE
24,400
19,000
Produced 19,000
Sold19,000
Inventories do not
change
Firms do not change
Production:
10,900
6,400
5,000
10,000
19,000
25,000
Y
10,000
25,000
Y = 19,000
and Aggregate24,400
Expenditures AE = 24,400
Y = 10,000
19,000
Y = 5,000
and Aggregate Expenditures AE = 19,000
5,000
10,900
If total
production
Y 25,000
=Y 10,000
If
production
Y
If total
production
= 5,000
If total
total
production
Y == 19,000
and Aggregate Expenditures AE =10,900
6,400
and Aggregate Expenditures AE = 6,400
Change
Change in
in Inventories
Inventories ==
Change
in Inventories
==
Change
Inventories
19,000
== 0
(no
25,000 ––in19,900
24,400
600
10,000
10,900
= -900
5,000
- –6,400
= -1,400
change)
(increase)
(decrease)
(decrease)
19,000
AE
Firms will decrease production
Firms will not change production
AE
Firms will increase production
Y = 25,000
The Keynesian Cross
Output
The
line line
4545
degree
Converts Horizontal
Distances into Vertical
Distances.
D
A
100
B C
1000
Income
AE
450
Y = 5,000
Y = 10,000
Y = 19,000
Y = 25,000
AE
450
Y = 5,000
Y = 10,000
Y = 19,000
Y = 25,000
At Equilibrium there is NO
change in Inventories
Y
AE
AE
AE
AE=C+I+G+X-M
AE (Sales)
Y(Production)
For any output level
For any output level above
belowTotal
equilibrium
Production (Y) equilibrium
Y = 5,000
Y = 10,000
Real Income = Real GDP = Y
Y = 19,000
AE = 24,400
G=
500
I = 1000
AE = 19,000I = 1000
C = 100 + 0.9Y
C = 22,600
C = 17,200
I = 1000
AE = 10,900
G=
500
If C, I, G or
NX increase
C = 9,100
If C, I, G or NX
drop
I = 1000
AE = 6,400
G=
500
NX=
300
NX=
300
G=
500
NX=
300
The AE line shifts
down
C = 4600
G=
500
I = 1000
NX=
300
NX=
300
The AE line shifts
up
AE
Y = 25,000
AE
Equilibrium
450
Y*
AE
Equilibrium
If AE line
shifts down
Y > AE
Inventories
increase
Firms
decrease
output
Lower Y*
Equilibrium
output
decreases
AE
New
Equilibrium
Equilibrium
If AE line
shifts up
AE>Y
Equilibrium
output
increase
Firms
Increase
Output
Y*
Inventories
Decrease
Higher Y*
Income that does not
come back to buy
goods and services
Leakages larger
than Injections
Injections
I+G+X=S+T+M
Larger than
Leakages
Spending =
Output
inventories do
not change
Not enough
spending
Inventories
accumulate
I+G+X
Injections
Y below equilibrium Y Equilibrium
Too much
spending
inventories fall
Y above equilibrium
AE =Total Purchases of Goods and Services
AE = 1,900 + 0.9 Yd
AE = 100 +1,800+ 0.9Yd
22,600 +1,800 = 24,400
AE = C+ (I+G+NX)
AE = C + 1,800
17,200 +1,800= 19,000
AE = 100 + 0.9Y +1,800
9,100 +1,800 = 10,900
C
4,600 +1,800= 6,400
Y
5,000
10,000
19,000
25,000
Find the value of AE=C+I+G+NX for each of these values of Y:
AE = 1,900+0.9Y
24,400
C = 100+0.9Y
19,000
10,900
6,400
5,000
10,000
19,000 25,000
Find the value of consumption for each of these values of Y:
C = 100+0.9Y
22,600
17,200
9,100
4,600
Y
5,000
22
10,000
19,000
25,000
I =1,000
G = 500
NX = 300
1,800
1,800 1,800
1,800
1,800
5,000 10,000
19,000 25,000
I+G+NX
Find the value of I+G+NX for each of these values of Y:
23
Too much Demand
for output
AE
Inventories increase
Y < AE
Inventories fall
Leakages =
Injections
I+G+X=S+T+M
Y > AE
Not enough Demand
for output
Y Equilibrium
Leakages
Injections
>
>
Injections
Leakages
Y below equilibrium
Y Equilibrium
Y above equilibrium
I+G+X
At equilibrium,
Leakages = Injections
S+T+M = I + G + X
Rearrange:
S = I + (G-T) + (X-M)
What
At Y =is 3,000
5,000
the equilibrium
are inventories
GDP?rising? Falling? Unchanged?
For
Forwhat
whatvalue
valueofofGDP
GDPis:
is:
YY==AE?
AE?
For what value of GDP is:
S = I +(G-T) +(X-M)?
I + (G-T) + (X-M)
Aggregate
Expenditures
Matches
Aggregate Expenditures = C + I + G + NX
with the corresponding value of
output
Aggregate Demand
Matches the
price level with the corresponding value
of equilibrium
output
Aggregate Demand
Price Level
P0
AD
Y0
Real GDP Demanded
Two things to remember when
you use the AD line:
Real Value
=
of Wealth
Wealth
Price Index
1. An increase in prices, decrease
the purchasing power of Wealth
Two2.things
to remember
when
An increase
in prices, decrease
Consumption
you use the AD
line:
C
Prices
C0
C1
Consumption
Decrease
Y
Y0
31
Two things to remember when
you use the AD line:
An increase in prices,
1. Decrease the purchasing power
wealth
2. Decrease Consumption
32
The equilibrium
value of output
decrease from Y0 to
Y1.
When prices
increase from P0
to P1,
The real value of
wealth decreases
and consumption
decreases from C0
to C1.
C
C0+I+G+NX
C1+I+G+NX
450
Y1
Y0
Y
The AE line shifts
down
Aggregate Demand
Price Level
P1
A movement ALONG
AD NOT a SHIFT!
Y1
Y0
When prices
increase
equilibrium
output decreases
P0
AD
Y1
Y0
Equilibrium Output
Real GDP Demanded
The equilibrium
value of output
increase from Y0
to Y2.
When prices
decrease from P0
to P2
The real value of
wealth increase
and consumption
increase from C0
to C2.
C
C2+I+G+NX
C0+I+G+NX
450
Y0
Y2
Y
The AE line shifts
up
Aggregate Demand
Price Level
A movement
ALONG AD NOT
a SHIFT!
P0
P2
AD
Y0
Y2
Equilibrium
Output
Real
GDP Demanded
When prices drop,
equilibrium output
increases
Output Y
Building the Lower
Aggregate
Demand Curve
1
When prices increase
from P0 to P1,
Equilibrium Output
drops from Y0 to Y1.
corresponds to
higher prices P1
When prices decrease
from P0 to P2,
Equilibrium output
increases from Y0 to Y2.
Higher Output Y2
corresponds to lower
prices P2
Inverse Relationship between Aggregate
Output Demanded and Price Level
The Consumption Function
C = a + MPC*
d
Y
Consumption responds to Consumption responds
changes in wealth, prices to changes in after tax
income
and expectations
Changes in income:
Changes in wealth, prices
Movement Along the C
and expectations: Shift C
line.
line
Shift C
If G,I,C, NX increase
AE line Shifts up
AD shifts NOT a
movement ALONG !
Aggregate Expenditures
45
Price level
P0
The size of the change in
equilibrium Y
Y0
Y1
Equilibrium Income increase
Prices are the same
AD1
Is the size of the shift in
AD
AD0
Y0
Y1
AD Shifts
If
C, I, G
or NX
increase,
When
prices
drop,
AE
shiftsup,
up
C shifts
Equilibrium
AE shifts up output increases
AD
shifts right
(outward).
Equilibrium
output
increases
AD does NOT shift! But move
along
Price Level
P0
Except when
prices drop!
P1
AD1
Y0
Y1
AD0
Real GDP Demanded
If G,I,C, NX decrease
AD shifts NOT a
movement ALONG !
AE line Shifts down
Aggregate Expenditures
Price level
P0
The size of the change in
equilibrium Y
Y1
Y0
Equilibrium Income decrease
Prices are the same
AD0
Is the size of the shift in
AD
AD1
Y1
Y0
If C, I, G or NX decrease,
AE shifts down,
Equilibrium output decrease,
AD shifts left (inward).
Price
Level
AD Shifts
When prices increase, C
shifts down,
AE shifts down,
Equilibrium output
decrease,
A movement along AD
P1
Except when
prices rise!
P0
Y1
Y0
AD1
AD0
Interest Rates drop: Investment increase by DI
AE1=C+G+I1+NX
DAE=DI
AE0=C+G+I0+NX
AE shifts up
AE1=AE1=C+G+I1+NX
AE0=C+G+I0+NX
Equilibrium Output Increase
DY
The Shift in AD is the same as the increase in
Equilibrium output:
DI
AE1
AE0
DAE
P0
AD1
AE1
AD0
AE0
DY
DY
The increase in GDP = Shift in AD:
DY
Excess Demand: AE > Y,
inventories drop.
If there is excess capacity
and Unemployment, firms
increase output but DO NOT
raise prices
AS0
DY
P0
AD1
AD0
Y0
Real GDP
Y2
The increase in GDP SMALLER than Shift in
AD: DY
AS1
P1
P0
)
DY = DG (1/1-MPC)
DY
Excess Demand: AE > Y,
inventories drop.
With some excess capacity and
lower unemployment, firms
increase both production and
prices.
AD1
AD0
Y0
Y1
Y2
Real GDP
No Increase in GDP: DY=0
AS1
P1
P0
DY = DG (1/1-MPC)
Excess Demand: AE > Y,
inventories drop. With NO
excess capacity and zero
unemployment, firms cannot
increase production, only prices
rise.
AD1
AD0
Y0
DY=0
Potential GDP
AE
450
Where we want to
be: zero cyclical
unemployment, no
excess capacity
AE
Equilibrium
GDP: where the
economy is
stuck
Equilibrium GDP
Potential GDP
To increase
To eliminate a
AE, we need
recessionary gap, AE
an increase in
must rise.
C, I, G or NX
Recessionary gap: when
actual
GDP is
than
Economy
is lower
producing
full
less employment
than desired GDP
output
E
Distance E-B
B
Recessionary Gap
7,000-6,000 =1,000
Increase AE to Eliminate a
Recessionary/Deflationary Gap


To increase Consumption: Decrease taxes
or increase transfers.
To increase Investment




Tax incentives.
Lower interest rates
Increase Government Spending
To increase Exports and decrease Imports:
Make dollar weaker (increasing supply of
dollars)
To eliminate
To decrease
an
AE,
we need a
inflationary
decrease
in C,
gap,
AE must
I, Gfall.
or NX
Labor
shortages:
Inflationary
gapFirms
when
trying
to hire workers
Equilibrium
GDP is
who
already
have
higher
than
Fulla
job GDP
Employment
= 7,000-8,000 =-1,000
Decrease AE to o Eliminate an
Inflationary Gap




Decrease Consumption: increase taxes or
decrease in transfers.
Decrease Government Spending
Increase interest rates
Decrease exports and increase imports:
stronger dollar.
Which AE line will cause a
recessionary gap?
Which AE line will cause an
Inflationary gap?
Assume the Economy is at Equilibrium
1.
2.
3.
4.
5.
6.
GDP = ?
Is total spending larger than/smaller than/equal to Output?
Do Inventories fall, rise or remain unchanged?
Does the economy experience a recessionary/inflationary gap?
What is the size of the gap?
How can the gap be closed?
Assume the Economy
is at Equilibrium
1.
2.
3.
4.
5.
6.
GDP = ?
Is total spending larger than/smaller than/equal to Output?
Do Inventories fall, rise or remain unchanged?
Does the economy experience a recessionary/inflationary gap?
What is the size of the gap?
How can the gap be closed?
Potential
GDP
C+I+G+NX
1.1.
2.2.
3.3.
4.4.
5.5.
6.
6.6.
theeconomy
economyat
atequilibrium
equilibrium??
IsIsthe
TotalSpending(
Spending(>>==<<)Output
)Output
Total
Inventories(rise,
(rise,fall,
fall,remain
remainthe
thesame)
same)
Inventories
Firmswill
will(increase,
(increase,decrease,
decrease,not
notchange)output.
change)output.
Firms
Oncethe
Does
the
theEconomy
economy
Economyreaches
experience
reachesequilibrium,
equilibrium,
a (recessionary,
willthe
the
inflationary)
economyexperience
experience
gap?
Once
will
economy
aa
(recessionary,
Is
the economy
inflationary)
experiencing
gap?
unemployment or labor shortages?
(recessionary,
inflationary)
gap?
theeconomy
economyexperiencing
experiencingunemployment
unemploymentor
orlabor
laborshortages?
shortages?
IsIsthe
AE shifts up
AE1
AE0
DAE=
AE1
AE0
P0
AD1
AD0
DY
Equilibrium Output Increase
DY
Aggregate Demand shifts Right
= DY*MPC
Using the MPC =DC
DC/DY
DC = DY*MPC
DC = 1000*0.7
2250+700 = 2950
?
DC = 700
MPC =0.7
2250
a*
DY = 1000
1000
58
2000
45
The Multiplier effect
Government
Output
Spending has
a
Increase
Dc = 81*0.9 effect
multiplicative
on
by MORE
Sum DC
Dc = 90*0.9
81
equilibrium
output
than DG
Newly employed buy more
Dc
= and
100*MPC
90services
goods
DAE
AE1=Y1
DG=100
Inventories
Drop=-100
DG
AE0=Y0
DY==DG
DAE
DY
+ sum Dc
DY=100
DY=90
DY=81
Y
Y1
Increase
Firms Increase
Y0
Output: hire
more workers
Y
We can write the total change in
spending as:
100
100 * 0.9
100
100 ** 0.9
0.9 *0.9
*0.9 *0.9
100
100 * 0.9 *0.9
100 * 0.9 *0.9 *0.9 *0.9
100
and so on…
For any increase in autonomous
Factor
out
100:
This
infinite
sum
terms equals:
spending
and
anyofMPC:
100
100
100 * 0.9
100 * 0.9 *0.9 *0.9
100
100 * 0.9 *0.9
100 * 0.9 *0.9 *0.9 *0.9
Use the
To calculate the chain of spending generated
from an increase in:
Government Spending
Investment
Autonomous Consumption
Net exports
62
The Multiplier
45
DAE
AE1=Y1
AE0=Y0
DY = DG (multiplier)
DY
Y
Y0
Y1= Y0+DY
G increase by DG = 700
To calculate the change in Equilibrium Y
use the Multiplier formula:
AE1
AE0
DAE= 700
D Y = DG x
AE1
AE0
D Y = 700 x
[
1
(1- MPC)
[
]
1
(1- 0.9)
]
10
D Y = 700 (1/0.1)
= 7000
DY= 7000
A 700 increase in government spending
generates a 7000 increase in output.
The Shift in AD is the same as the increase in
Equilibrium output:
AE1
AE0
DAE= 700
AE1
AE0
P0
AD0
DY= 7000
DY= 7000
AD1
Output increases by Full Multiplier Amount
AD Shifts by the full multiplier amount
DY = DG (1/1-MPC)
Excess Demand: AE > Y,
inventories drop.
If there is excess
capacity and
Unemployment, firms
AS0 increase output but DO
NOT raise prices
DY = DG
P0
(1/1-MPC)
AD1
AD0
Y0
Real GDP
Y2
Inflation Reduces the Size of the Multiplier
Excess Demand: AE > Y,
inventories drop.
With some excess capacity
and lower unemployment,
firms increase both
production and prices.
AS1
P1
DY = DG
P0
(1/1-MPC)
AD1
AD0
Y0
Y1
Y2
Output increase by
less than the
multiplier amount
Real GDP
At Full Employment there is
NO multiplier effect
AS1
Excess Demand: AE > Y,
inventories drop. With
NO excess capacity and
zero unemployment,
firms cannot increase
production, only prices
rise.
AD
P1
DY = DG
P0
(1/1-MPC)
1
AD0
Y0
Real GDP
What is the necessary DG = ?
AE1
AE0
DAE= ?
DY = DG x
[
[
1,000= DG x
AE1
AE0
1
(1- 0.9)
1,000 = DG (1/0.1)
DG = 1,000 /10 = 100
DY= 1,000
]
]
1
(1- MPC)
Effect of Expansionary Policy
Only Prices
At Full Employment
As the
riseeconomy gets
closer toCloser
Potential
to Full Employment
GDP, the slope of AS
increase (steeper)
Prices Increase
Prices do
Not change
Below full employment
Output Increases
by full multiplier
Output
Output
can
Increases
not increase
by
noless
multiplier
than multiplier
effect
5,500
4,750
4,000
3,250
2,500
2,000 3,000 4,000 5,000 6,000 7,000
The economy must be
operating in segment:
a.A - B
b.B – D
c.D – G
d.None of the above
Labor
costs
are
rising
due
labor
shortages.
After
The
abillion
40
main
billion
effect
increase
of an
in
Ghas
, inflation
in
rose
increase
and
output
ininprices.
remained
AA
50
increase
in
resulted
inGto
aislargest
500
increase
output
50
billion
increase
inGincrease
G
resulted
in
aan
400
increase
in
output
An
increase
in
investment
the
multiplier
effect.
the same
Y
C
I
G
X
M
15000
19000
23000
27000
31000
15000
18200
21400
24600
27800
900
900
900
900
900
500
500
500
500
500
700
700
700
700
700
500
500
500
500
500
1.
2.
3.
4.
5.
6.
7.
8.
NX
AE
Change
Leakag Injectio
in
Firms
S
es=S+T
ns
Inventori react by:
+M
=I+G+X
es
Calculate the MPC and the intercept of the consumption function. Show your work :
Write the Consumption equation:
Write the Savings equation:
Calculate NX(fill in the values in the table) Show your work :
Write the AE equation:
Calculate AE (fill in the values in the table) Show your work :
Calculate S (fill in the values in the table) Show your work :
Calculate the Change in Inventories (fill in the values in the table) be sure to write a sign (+ or -) for increase or
decrease. Show your work :
9. Write in each space in the table how do firms react to the change in inventories? Do they increase/decrease
production?
10.Calculate Leakages and Injections (fill in the values in the table) Show your work :
11.What is the equilibrium value of GDP?
12.Are Leakages = Injections at equilibrium?
13.Why is the economy at equilibrium at this Output level?
14.Fill in ALL blank boxes in the graphs :
73
Y
C
I
G
X
M
NX
AE
15000 15000 900
19000 18200 900
500
500
700
700
500
500
200
200
16600
19800
23000 21400 900
27000 24600 900
31000 27800 900
500
500
500
700
700
700
500
500
500
200
200
200
S
Chang
Injecti
Firms Leaka
e in
ons
react ges=S
Invent
=I+G+
by: +T+M
ories
X
0 -1600 Inc Y
800 -800 Inc Y
No
chang
23000 1600 0
e
26200 2400 800 Dec Y
29400 3200 1600 Dec Y
500 2100
1300 2100
2100 2100
2900 2100
3700 2100
Questions for review
1. Determine the effect on AE, AD, Equilibrium output
a) Prices Increase (decrease): in red because changes in
prices do not shift the AD line!
b) NX Increase (decrease)
c) Exports Increase (decrease)
d) Imports Increase (decrease)
e) Wealth Increase (decrease)
f) Interest rates Increase (decrease)
g) Technological Improvement
h) Government spending Increase (decrease)
i) Taxes Increase (decrease)
j) Transfers Increase (decrease)
AE component affected
Shift?
Movement
Along?
C drops due to wealth
effect: consumers feel
Prices Increase poor
C shifts down
C increases due to
wealth effect: consumers
Prices Decrease feel rich
C shifts up
AE
Shifts Equilibrium Y
AD
down decreases
Movement
up along
up
increases
Movement
down along
up
increases
shifts right
NX Increase
NX increase
NX shifts up
NX Decrease
NX decrease
NX shifts down down decreases
shifts left
Exports Increase NX increase
NX shifts up
shifts right
Exports Decrease NX decrease
NX shifts down down decreases
shifts left
Imports increase NX decrease
Imports
Decrease
NX increase
C increases due to
Wealth Increase wealth effect
C drops due to wealth
Wealth Decrease effect
NX shifts down down decreases
shifts left
NX shifts up
up
increases
shifts right
C shifts up
up
increases
shifts right
C shifts down
down decreases
up
increases
shifts left
Shift? Movement AE Equilibrium
AE component affected
Along?
Shifts
Y
Interest rates
increase
Interest rates
Decrease
Technological
Improvement
Government
Spending
Increase
Government
Spending
Decrease
Taxes Increase
Investment drops
I shifts down
Investment Increases I shifts up
Investment increases I shifts up
down decrease
up
up
increase
shifts left
shifts
right
increase
shifts
right
increase
shifts
right
G increases
G shifts up
G drops
C drops
G shifts down down decrease
C shifts down down decrease
Taxes Decrease C increases
Transfers
Increase
C increases
Transfers
Decrease
C drops
up
AD
C shifts up
up
increase
C shifts up
up
increase
shifts left
shifts left
shifts
right
shifts
right
C shifts down down decrease
shifts left
Practice
1. Determine the effect on Aggregate Expenditures.
Identify the component of AE which is affected (C, I,
G, X or M) and explain how it is affected.
a) Prices in the US Increase (decrease) relative to prices
abroad.
b) The U.S. dollar becomes weaker (stronger)
c) Home prices collapse (increase)
d) Stock prices collapse (increase)
e) Interest rates Increase (decrease)
f) A zero-emissions engine is developed.
g) Government announces an Increase (decrease) in the
number of troops deployed abroad.
h) As the economy recovers (enters into a recession)
incomes increase (drop).
78
AE component affected
Relative US US prices higher to foreigners: X fall.
Prices
Foreign prices seem lower to
Increase
Americans: M rise
Shift?
Movement
Along?
AE
Shifts
NX shifts down down
Relative US US prices seem cheaper to foreigners:
Prices
X rise. Foreign prices seem higher to
Decrease
Americans: M drop
NX shifts up
up
Dollar
weaker
Dollar buys less foreign currency: US
prices seem cheaper to foreigners: X
rise. Foreign prices seem higher to
Americans: M drop
up
Dollar
Stronger
Dollar buys more foreign currency: US
prices seem higher to foreigners: X
drop. Foreign prices seem lower to
Americans: M rise
NX shifts down down
NX shifts up
79
AE component affected
Home prices drop
Home prices rise
C drops (consumers are
poorer)
AE
Shift? Movement Along? Shifts
C shifts down
down
C shifts up
up
Stock prices drop
C rise (consumers are richer)
C drops (consumers are
poorer)
C shifts down
down
Stock prices rise
C rise (consumers are richer)
C shifts up
up
Interest rates increase
Investment drops
I shifts down
down
Interest rates Decrease
Zero Emissions Engine
invented
Investment Increases
I shifts up
up
Investment increases
I shifts up
up
G increases
G shifts up
up
Government Spending
Increase (increase
Troops)
Government Spending
Decrease (Decrease
Troops)
G drops
G shifts down
down
Recession (Income
Disposable Income drops C
Movement down
Drops)
drops
along C
down
Expansion (Incomes Disposable Income increase C
Increase)
increase
Movement up along C up
80
Practice
Label the two lines in the next slide.
Use the information in the graph to find the following:
A. Find the slope of the AE line. Recall the slope of the AE
line is the MPC.
B.
Find the intercept of the AE line.
C. Write down the equation of the AE line.
D. Find the value of AE when income is 40,000
E.
What is the equilibrium value of income/output in this
case?
F.
Find the value of AE when income is 50,000 and when
income is 25,000.
G. Fill in the values for each box in the graph.