In the Keynesian income-expenditure (TE-TP) model below, suppose the economy is currently at Q1, and full employment Real GDP is at Q2. a) Describe what happens to business inventories if current economy is at Q1 level of Real GDP, and what happens next. b) Based on the graph, at what level of Real GDP will the economy finally rest, Q1, Q2, or Q3? TP, TE 0 C E A Q3 B 45° Line =TP Q₂ TE=C+I+G Real GDP
In the Keynesian income-expenditure (TE-TP) model below, suppose the economy is currently at Q1, and full employment Real GDP is at Q2. a) Describe what happens to business inventories if current economy is at Q1 level of Real GDP, and what happens next. b) Based on the graph, at what level of Real GDP will the economy finally rest, Q1, Q2, or Q3? TP, TE 0 C E A Q3 B 45° Line =TP Q₂ TE=C+I+G Real GDP
Chapter23: The Aggregate Expenditure Model
Section: Chapter Questions
Problem 11P
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