Equilibrium exists in the aggregate expenditure model when ___.

Question

BlackTom AI · Accepted Answer

To understand the equilibrium condition in the aggregate expenditure model, we must compare what is actually produced (income or output, Y) with what is planned to be spent (planned spending or aggregate expenditure, AE).

Option 1 suggests that equilibrium occurs when the difference between planned spending and actual spending is maximized. In reality, large differences between planned and actual spending trigger changes in inventories, implying that equilibrium is not reached when this gap is maximized; instead, inventory adjustments move the system toward equilibrium.

Option 2 states that income is equal to planned spending. This is the core equilibrium condition: when Y = AE, there are no unplanned changes in inventories, and firms have exactly the amount of production they planned to sell. This alignment means the economy is in a steady state with no pressure to change output in the next period.

Option 3 claims that inventories are zero. While zero unplanned inventory changes are a feature of equilibrium, zero inventories is not a necessary requirement; the key is that unplanned changes are zero, which can happen with positive or even small inventories that do not change unexpectedly. Hence this statement is too specific and not the general criterion.

Option 4 says saving is zero. Saving is not the determining factor for equilibrium in the classical simple Keynesian model; equilibrium depends on the equality between income and planned spending, not on the level of saving itself.

Taken together, the correct interpretation is that equilibrium exists when Y equals AE, i.e., income is equal to planned spending, while the other options misstate the conditions or introduce unnecessary specifics.

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

Equilibrium exists in the aggregate expenditure model when ___.

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类似问题

Calculate the sum of saving and taxes below based on the following equations that make up aggregate expenditure. Consumption: C = 2,700 + 0.9Y Planned investment: I = 3,000 Government purchases: G = 1,100 Net exports: NX = -300 Equilibrium condition: Y = C + I + G + NX

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