Question

4. Which of the following is a correct feature of the AE model (AE = Aggregate...

4. Which of the following is a correct feature of the AE model (AE = Aggregate Expenditure): a. within the AE model, increases in AE cause the price level to increase
b. within the AE model, changes in the price level cause a shift in the AE line
c. within the AE model, equilibrium GDP is always equal to Potential GDP

d. within the AE model, Potential GDP is found where the AE line crosses the 45° line
e. within the AE model, equilibrium occurs where the AE line intersects Aggregate Supply

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Answer #1

4.e. within the AE model, equilibrium occurs where the AE line intersects Aggregate supply.

Explanation:

A correct feature of the AE model(AE=Aggregate Expenditure) is that within the AE model, equilibrium occurs where the AE line intersects Aggregate supply.In the aggregate expenditure model, equilibrium occurs where the AE line crosses the 45-degree line,that depicts aggregate supply and it constitutes the set of points where aggregate expenditure is equivalent to output or aggregate supply.

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