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Problem 3: In Evland, potential GDP is E3,000. The table shows Evland's aggregate demand
and short-run aggregate supply schedules. The slope of the AE curve is 0.4 and autonomous
expenditure is initially E1,800 before investment increases by E1,200. (a) Calculate the new
equilibrium expenditure. (b) How much does the AD curve shift? (c) What is the multiplier in
the short run? (d) What is the output gap in the short run? (e) What is the multiplier in the long
run?

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Problem 3 In Evland, potential GDP is E3,000. The table shows Evland.pdf

  • 1. Problem 3: In Evland, potential GDP is E3,000. The table shows Evland's aggregate demand and short-run aggregate supply schedules. The slope of the AE curve is 0.4 and autonomous expenditure is initially E1,800 before investment increases by E1,200. (a) Calculate the new equilibrium expenditure. (b) How much does the AD curve shift? (c) What is the multiplier in the short run? (d) What is the output gap in the short run? (e) What is the multiplier in the long run?