Real aggregate
expenditure, AE

Real GDP, Y

AE

Y=AE

Equilibrium real GDP

Recession on the 45°-Line Diagram

When the AE line intersects the 45° line
at a level of GDP below potential GDP,
the economy is in recession.
Try to think of some reasons that causes
the planned AE to be low and some
consequences of the recession.

Potential real GDP

Equilibrium
real GDP

Potential
real GDP

Shortfall in AE 
that results in 
recession.

AE = -1.64 (slider from -2 to 0, step 0.01)
u = Vector((0, 0), (14, 0))
v = Vector((0, 0), (0, 12))
f(x) = If[0 ≤ x ≤ 12, x]
h(x) = If[0 ≤ x ≤ 12, ((-((-0.5))) * x) + 5 + AE]
D = Intersect(f, h, (6.7200000000000015, 6.7200000000000015))
E: (x(D), 0)
a = Segment(D, E)
N_1 = (10, 12)
N_2 = (10, 0)
b = Segment(N_1, N_2)
A = Point(h)
B = Intersect(f, b, (10, 10))
C = Intersect(h, b, (10, 8.36))
c = Segment(B, C)
d = Segment(B, C)