(Solved): 3. A graphical approach to equilibrium GDP in a private closedeconomy The following graph shows the ...

3. A graphical approach to equilibrium GDP in a private closedeconomy The following graph shows the consumption function (C) for a hypothetical private closed economy and a 45 -degree line along which aggregate expenditure equals real GOP (AEeY). Recall that a private closed economy does not have government and does not trade with the rest of the world (so \( G=0 \) and \( (X-M)=0) \). In a private closed economy, real GDP is equal to disposabie income. At the curtent real interest rate, the level of investment in this economy is equal to \( \$ 25 \) billion at each level of real GDP. Use the blue line (circle symbols) to plot this economy's initial aggregate expenditure line, \( (C+1) \). Then, use the black point \( (X \) symbol) to indicate this economy's initial equilibrium output, Dashed drop lines will automatically extend to both axes. (Hint: You can see two of the coordinates along the consumption function by mousing over the green triangles on the graph.) omework income and Expenditures Equilibrium At the level of equillberum output you just indicated, the level of saving is equal to At an output level of \( \$ 550 \) bilion, aggregste expenditure will be real GDP and firms will experience In business inventories. Firms will respond to this situation by: Decreosing production tncreasing production Leaving procietion unchanged At an output level of 3450 billion, agaregate expenditure will be real \( G D P \) and tirms wel experience In business inventories. Firms will respond to this situation by? Leaving profuction unchanged Decreasing production increasing production Suppose the real interest rate falls and the ievel of investment in this economy increases by 325 billion. Use the blue line (circin symbois) to show the economy's agaregate erpenditure line, \( (C+1) \), after the increase in investment. Then use the gray point (star symbol) to show the economyrs new equilibriam output. Dashed drop lines wif extend to both oxes. Hint: Start wat your aggregate evpenaiture line from the previous graph. Make sure the slope of the aggregate expenditure line is the same as the previous aggregate expenditure line vou just pletted. You can check the slope of the line by clicking on the line after you plot it. mework Income and Expenditures Equilibrium Hint: Start with your aggregate expenditure line from the previous graph. Make sure the slope of the aggregate expenditure line is the same as the previous aggregate expenditure line you just plotted. You can check the slope of the line by clicking on the line after you plot it. Aggregate Expenditure with higher real interest rate Equilibrium with higher real interest rate The simple spending multiplier for this private closed economy is