-The Above Figure Shows the AE Curve and 45° Line

question 279

Essay

-The above figure shows the AE curve and 45° line for an economy.
a) If real GDP equals $8 trillion, how do firms' inventories compare to their planned inventories?
b) If real GDP equals $16 trillion, how do firms' inventories compare to their planned inventories?
c) What is the equilibrium level of expenditure? Why is this amount the equilibrium?

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Definitions:

Real Directly

The concept of perceiving or understanding something as it truly is, without mediation or interpretation.

Plato's Metaphysics

The branch of philosophy in Plato's works that studies the nature of reality, including the theory of Forms, where abstract forms or ideas possess the highest and most fundamental kind of reality.

Heraclitus

An ancient Greek philosopher known for his theory that change is the fundamental essence of the universe, encapsulated by the phrase "everything flows".

Pythagoras

An ancient Greek philosopher and mathematician known for formulating the Pythagorean theorem in geometry.