Given this diagram, the equilibrium level of real GDP is ___.

Question

BlackTom AI · Accepted Answer

To determine the equilibrium level of real GDP from a Keynesian-cross style diagram, we look for the point where aggregate expenditures (AE) equal the current output (GDP), which is represented by the 45-degree line. At equilibrium, the economy sits where AE1 intersects the 45° line, and the corresponding horizontal level on the real GDP axis marks the equilibrium output.

Option Y1: This represents a lower horizontal GDP level, corresponding to a point left of the intersection. If GDP were at Y1, AE would exceed or fall short of the 45° line, indicating that the economy would adjust away from Y1 toward the equilibrium point, so Y1 is not the equilibrium.

Option Y3: This is to the right of the intersection, at a higher GDP level. If GDP were at Y3, the economy would experience either excess expenditure or shortfall relative to the 45° line, implying movement toward the equilibrium rather than sitting at Y3.

Option Y4: This is the farthest to the right among the options. At Y4, the gap between AE1 and the 45° line would be larger, signaling disequilibrium that would push GDP back toward the intersection point.

Option Y2: This is the GDP level directly underneath the intersection of AE1 and the 45° line, i.e., where planned spending matches actual output. This is the point at which the economy is in equilibrium, with no inherent pressure to rise or fall.

In short, the equilibrium GDP is the output level at which AE equals GDP, which corresponds to the Y2 position on the diagram, where the AE1 line intersects the 45° line.

ECON 2002.01 AU2025 (21333) Midterm Exam 3 - Requires Respondus LockDown Browser

Given this diagram, the equilibrium level of real GDP is ___.

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