150 148 140 132 130 5 130 140 150 Real GDP ftrillions of d

15.0- --. 14.8? 140 - 132 13.0 5° 130 140 150 Real GDP ftrillions of dollars) 1. Using the aggregate expenditure function above, what is the current level of real GDP? Using the aggregate expenditure function above, what would be the level of real GDP if the aggregate expenditure function shifted up by $0.2T? 2.

Solution

Ans

A current real Gdp is 140 trillion dollars. It is determined by intersection of two curves.

B here slope of two functions will be same. So elasticity will be same. Elasticity here is 10/140/.8/14=1.25

So it will increase gdp by 0.2(1.25)=0.25 trillion