If real GDP and aggregate expenditure are greater than equilibrium
Q1 If real GDP and aggregate expenditure are greater than equilibrium expenditure, what happens to firms’ inventories? How do firms change their production? And what happens to real GDP?
Q2 What is the multiplier? What does it determine? Why does it matter?
Q3 How do the marginal propensity to consume, the marginal propensity to import, and the income tax rate influence the multiplier?
Q4 How do fluctuations in autonomous expenditure influence real GDP?
Q5 How does a change in the price level influence the AE curve and the AD curve?
Q6 If autonomous expenditure increases with no change in the price level, what happens to the AE curve and the AD curve? Which curve shifts by an amount that is determined by the multiplier and why?
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Solution: If real GDP and aggregate expenditure are greater than equilibrium