Question

Use the information in the following table, and information given on imports and exports, to determine the level of unplanned inventory at each level of real GDP.

Employment, Output, Consumption, and Unplanned Inventory
Possible Levels of Employment	Real GDP (Output) Equals Disposable Income	Consumption	Investment	Unplanned Inventory
(Millions of workers)	(Billions of dollars)	(Billions of dollars)	(Billions of dollars)	(Billions of dollars)
40	325	300	150
45	375	325	150
50	425	350	150
55	475	375	150
60	525	400	150
65	575	425	150
70	625	450	150

Given the values of imports and exports, the effect of net exports (relative to the case where net exports are excluded) on this economy is to unplanned inventory investment at all levels of real GDP and to the level of real GDP at equilibrium. With the inclusion of net exports, the equilibrium real GDP is $billion, and the equilibrium employment level ismillions workers.

Answer 1

Ans:-

The aggregate expenditure of the economy is consumption plus government expenditure plus investment expenditure plus net export. The unplanned inventories are the difference between aggregate expenditure and output in the economy. If there are positive unplanned inventories the aggregate expenditure is less than the output, and vice versa.

The economy is summarized in the table below

Employment	RGDP	Consumption	Investment	Export-Imports	TE	Unplanned Inventories	TE without NX
40	325	300	100	-25	375	-50	400
45	375	325	100	-25	400	-25	425
50	425	350	100	-25	425	0	450
55	475	375	100	-25	450	25	475
60	525	400	100	-25	475	50	500
65	575	425	100	-25	500	75	525
70	625	450	100	-25	525	100	550

Given the value of NX, the net export increasesunplanned inventories at each level of RGDP and decreases equilibrium RGD to $425 billion

The value of employment in the economy decreases to 50 million workers.