Question 4.

Question 4 [12 points] The graph below shows the economy of China. Planned Aggregate Expenditures 2400 2100 1800- 1500 Real aggregate expenditures (in dollars) 1200 9007 600-AEALEY 300 Potential Output 400 800 1200 1600 2000 2400 Reset Real income (in dollars) a) What type of gap exists in this economy, and how big is that gap? Inflationary gap of $ 0 b) By how much must government expenditures change to eliminate this gap? Decrease by $ 0 c) Demonstrate this graphically in the graph above