Question

At the old equilibrium point E₁, the segment E₁F in the diagram measures:

Options

• The excess demand created by the increase in autonomous expenditure

• The vertical intercept of the AD₁ curve

• The increase in equilibrium output from Y₁ to Y₂

• The total value of autonomous expenditure at the new equilibrium

Answer 1

At the old income level Y₁, the new demand curve AD₂ lies above the 45° line by the distance E₁F. This vertical gap represents the excess demand that the rise in autonomous expenditure creates at the old equilibrium.