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Suppose That the Expenditure Line Initially Intersects the 45-Degree Line

Question 172

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Suppose that the expenditure line initially intersects the 45-degree line at a point where potential GDP is equal to real GDP. Now, suppose over the next year the economy goes into a boom. Draw a graph showing what happens to the expenditure line as the economy moves into a boom.

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Initially, the expenditure line is at E1 ...

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