Exhibit 23-6 -According to Exhibit 23-6, Line Abd Shows the Path of the Path

question 45

Multiple Choice

Exhibit 23-6
-According to Exhibit 23-6, line abd shows the path of potential GDP. In Year 2, suppose the expenditure line intersects the 45-degree line at the level of spending corresponding to point b. If, in Year 3, the economy is at point e, then

• A) the expenditure line has shifted up the 45-degree line to a point where real GDP equals potential GDP in Year 3.
• B) the expenditure line has shifted up the 45-degree line, but the level of income is less than the amount corresponding to real GDP.
• C) the expenditure line has shifted down the 45-degree line.
• D) the expenditure line has shifted up the 45-degree line more than it would have if real GDP equaled potential GDP in Year 3.
• E) potential GDP has declined, and we've moved to a new point of spending balance.

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Definitions:

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