Answer the following questions, which relate to the aggregate expenditures model:

1. If Ca is \(100, Ig is \)50, Xn is −\(10, and G is \)30, what is the economy’s equilibrium GDP?

2. If real GDP in an economy is currently \(200, Ca is \)100, Ig is \(50, Xn is −\)10, and G is \(30, will the economy’s real GDP rise, fall, or stay the same?

3. Suppose that full-employment (and full-capacity) output in an economy is \)200. If Ca is \(150, Ig is \)50, Xn is −\(10, and G is \)30, what will be the macroeconomic result?

The equation for equilibrium GDP is Y = C_a + I_g + X_n + G

Placing the respective values in the equilibrium equation as follows:

Y = $100 + $50 - $10 + $30

Y = $170

Therefore, the economy’s equilibrium GDP is $170.

C_a = $100

I_g = $50

X_n = -$10

G = $30

Placing the values of expenditure components in the equilibrium equation:

Total Spending = $100 + $50 - $10 + $30

Total Spending = $170

The real GDP in the economy is $200, and the total spending is $170.

Since the real GDP is greater than the total spending GDP, the output or the real GDP will decline until the economy reaches an equilibrium.

C_a = $150

I_g = $50

X_n = -$10

G = $30

Placing the values in the equation for equilibrium condition:

Y = $150 + $50 - $10 + 30

Y = $220

The full employment income is $200, the actual GDP ($220) is more than the potential GDP. It will cause an inflationary expenditure gap which can be reduced by slowing down or reducing production.