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1. On a graph, show a level of equilibrium GDP that illustrates the problems that capitalism creates, and speculate on how we can get equilibrium from its lower level to the desired level.
There are inherent problems in the market economy and this creates uneven distribution of income under capitalism as workers are paid for what they produce and the plans of these agents in the economy or self-interested and unstable. The investment expenditure and the consumption of durables are unstable and hence the Equilibrium level of income is less than the desired level of output and income. In the figure below the full employment level of output is at Yn; and the equilibrium level of output is at Ye. To increase the level of Expenditure in the economy; expansionary fiscal policy should be used to trigger the aggregate demand and expenditure which will increase the expenditure to Ep ‘where the desired level of equilibrium output is achieved....

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