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The following graph shows the aggregate expenditures line (AE) for an economy where current equilibrium output is $400 billion and full-employment output is $650 billion.
The following graph shows the aggregate expenditures line (AE) for an economy where current equilibrium output is $400 billion and full-employment output is $650 billion. 800 45-degree line 700 AE 600 AE 500 AGGREGATE EXPENDITURES (Billions of dollars) 400 300 200 100 Full-employment GDP 0 0 100 200 300 400 500 600 700 800 REAL GDP (Billions of dollars) The economy is experiencing a GDP gap with the absolute value of the gap equal to | $ billion. To close the GDP gap would require a $ billion in government spending. Thus the spending multiplier for this economy is On the graph, shift the AE line to show the change in the aggregate expenditures line necessary to close the GDP gap
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