5. Expenditure gaps The following graph shows the planned expenditure line (AE) for an economy where current equilibrium income is $300 billion and full-employment income is $600 billion. ? 700 45-degree line 600 PE 500 PE REAL EXPENDITURE (Billions of dollars) 300 200 Full-Employment Income 0 0 100 600 700 200 300 400 500 INCOME (Billions of dollars) The economy is experiencing would require a $ with the absolute value of the gap equal to $ billion. Closing the income gap in government spending. Thus the value of the multiplier for this economy is a recessionary gap On the graph, shift the PE line an inflationary gap In the planned expenditure line necessary to close the income gap. INCOME (Billions of dollars) increase decrease The economy is experiencing would require a $ with the absolute value of the gap equal to $ billion. Closing the income gap in government spending. Thus the value of the multiplier for this economy is billion On the graph, shift the PE line to show the change in the planned expenditure line necessary to close the income gap. Full-Employment Income 0 0 100 600 700 200 300 400 500 INCOME (Billions of dollars) 1 0.5 2 me gap The economy is experiencing would require a $ with the absolute value of the gap equal to $ billion. Closing in government spending. Thus the value of the multiplier for this economy is billion On the graph, shift the PE line to show the change in the planned expenditure line necessary to close the income gap. ? 700 45-degree line 600 PE PE, 500 400 PE REAL EXPENDITURE (Billions of dollars) 300 200 100 Full-Employment Income 0 O 100 300 600 700 200 400 500 INCOME (Billions of dollars)