Question

1. In the aggregate planned expenditure model, the equilibrium level of GDP can be determined by finding the output level at which the unplanned change in inventories is

less than aggregate expenditures

equal to government expenditures

greater than aggregate expenditures

equal to consumer spending

equal to zero

2. The shape of the long-run aggregate supply curve suggests that

Potential GDP is negatively related to the average price level

Potential GDP is the amount of output that can be produced if the economy is operating at maximum capacity

Potential GDP is positively related to the average price level

Potential GDP is independent of the average price level

Answer 1

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INTRODUCTION:-

Aggregate Planned Expenditure Model focuses on relationship between production and planned expending. Where production is related to GDP and planned expending is related to aggregate expenditure over a period of time.

Aggregate Expenditure=C+I+G=NX

Where, C-Hosehold Consumption

I-Captial Expenditure

G-Government Expenditure

NX-Net Export.

1. ANSWER-

In the aggregate planned expendituremodel, the equilibrium level of GDP can be determined by finding the output level at which the unplanned change in inventories is equal to zero.

Equilibrium Condition: Y=C+I

2.ANSWER-

The shape of the long-run aggregate supply curve suggest that Potential GDP is positively related to the averge price level.

Because In contrast, when there is an excess of expenditure over supply, there is excess demand which leads to an increase in prices or output (higher GDP) and When there is excess supply over the expenditure, there is a reduction in either the prices or the quantity of the output which reduces the total output (GDP) of the economy.

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