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Homework answers / question archive / Suppose the equation of an economy's Aggregate Planned Expenditure function is AE=
Suppose the equation of an economy's Aggregate Planned Expenditure function is AE=.75y+800. What is the value of the equilibrium level of real GDP (denoted Y*)?
In this model, the equilibrium occurs where aggregate expenditures equal GDP.
Y=0.75Y+800
Y-0.75Y=800
0.25Y=800
Y=800/0.25=3200
So, the equilibrium level of GDP is 3200.
