In Figure 22.13, the economy is initially in equilibrium at point A. Aggregate expenditure and real GDP both equal $19.2 trillion. The increase in investment of $200 billion described in the text initially increases aggregate expenditure to $19.4 trillion. 

Data in Figure 22.13,

a. If real GDP increases to $19.4 trillion, will the economy be in equilibrium? Briefly explain. 

b. When real GDP increases to $19.4 trillion, is aggregate expenditure greater than or less than $19.4 trillion? Briefly explain.

Transcribed Image Text:

Real aggregate $20.8 expenditure, AE (trillions of 2012 dollars) 20.4 20.0 19.6 19.2 18.8 18.4 18.0 0 45° $18.0 18.4 18.8 Potential real GDP 19.2 19.6 B 20.0 Y = AE AE₂ AE₁ 1. A $200 billion increase in planned investment ... 20.4 20.8 Real GDP, Y (trillions of 2012 dollars) 2... results in an $800 billion increase in equilibrium real GDP.