Question

to determine the amount of government spending that will return the economy to potential gdp/full employment, it is important to remember that in equilibrium:

Answer 1

If an economy's current real GDP is higher than its output at full employment, it is considered to be in a boom. If current output is equivalent to what is needed for full employment, then.

How do you determine the real GDP equilibrium level?

Y = AE is the Keynesian prerequisite for determining equilibrium real GDP. The diagonal, 45° line with the notation Y = AE in Figure serves as a symbol for this equilibrium condition. The 45° line and the AE curve must intersect for the real national income or GDP to be equal to the level of equilibrium.

What relationship does the GDP at equilibrium have to the GDP at maximum employment?

If the current real GDP of an economy is less than the output at full employment, then that economy is in a recession. When there is full employment, the economy is booming if the current real GDP exceeds. If the current output is equal to the output at full employment, the economy is said to be in long-run equilibrium.

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