The graph shows the AD line and the 45° line. At an income of ₹240 crore (point A), what happens? An AD line starting at ₹100 crore and a dashed 45° line meeting at E (₹400 crore). At an income of ₹240 crore, AD is ₹280 crore (point A, above the 45° line). At an income of ₹480 crore, AD is ₹460 crore (point B, below the 45° line).

The graph shows the AD line and the 45°…

The graph shows the AD line and the 45° line.

Question 4

MediumOriginal question

The graph shows the AD line and the 45° line. At an income of ₹240 crore (point A), what happens?

An AD line starting at ₹100 crore and a dashed 45° line meeting at E (₹400 crore). At an income of ₹240 crore, AD is ₹280 crore (point A, above the 45° line). At an income of ₹480 crore, AD is ₹460 crore (point B, below the 45° line).

Output exceeds AD by ₹40 crore and output fallsCorrect answerYour answerThe economy is in equilibriumCorrect answerYour answerAD exceeds output by ₹280 croreCorrect answerYour answerAD exceeds output by ₹40 crore, stocks run down and output risesCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer D

Correct answer: D

At Y = 240, AD = 280 (point A lies above the 45° line).
Planned spending exceeds output by 40, so firms sell from stock and raise output towards E.

Concept: Below equilibrium
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsEquilibrium: AD equals output

Practise this chapter →

Ten questions from Income Determination & the Multiplier, at your own pace.

Practise this chapter →

Ten questions from Income Determination & the Multiplier, at your own pace.

The graph shows the AD line and the 45° line.

Question 4

Explanation