Use the Graph Below to Explain the Determination of Equilibrium

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Equilibrium occurs where C + I<sub>g</sub> = GDP.There is a direct relationship between aggregate expenditures and the level of GDP,but they are equal only where the AE schedule intersects the 45-degree line,which shows equality of expenditures and GDP.Where aggregate expenditures exceed GDP,the AE line is above the 45-degree line and output will continue to expand.If aggregate expenditures fall below GDP as would occur at levels above 600,then GDP will contract until the expenditures-output equality is restored. The 45-degree line in the aggregate expenditures model represents all of the points where aggregate expenditures are equal to real GDP;all of the possible equilibrium levels.

Equilibrium occurs where C + I_g = GDP.There is a direct relationship between aggregate expenditures and the level of GDP,but they are equal only where the AE schedule intersects the 45-degree line,which shows equality of expenditures and GDP.Where aggregate expenditures exceed GDP,the AE line is above the 45-degree line and output will continue to expand.If aggregate expenditures fall below GDP as would occur at levels above 600,then GDP will contract until the expenditures-output equality is restored.
The 45-degree line in the aggregate expenditures model represents all of the points where aggregate expenditures are equal to real GDP;all of the possible equilibrium levels.

Use the Graph Below to Explain the Determination of Equilibrium

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