Assume that aggregate expenditures are greater than real GDP. What will happen to unplanned inventories? What...

Assume that aggregate expenditures are greater than real GDP.
1. What will happen to unplanned inventories?
2. What will happen to actual investment?
3. What will happen to production and employment levels in the next period?

Solutions

Expert Solution

** Please like if answer was helpful. It would mean a lot! **

a. If aggregate expenditure is greater than the real GDP then there will exist no unplanned inventories. Infact, the economy will have higher demand than dupply which will mean that not enough goods and services are available in the economy to fulfill present needs. This may consequently result in an increase in price.

b. We know that investment is part of aggregate expenditure and as a result this will mean that a higher aggregate expenditure will result in higher investment. However due to a lack of supply in the market to reach equilibrium, price levels will rise and to offset this change the monetary authority will increase the interest rates in the economy which will then result in lowering of the investment.

c. The production and employments will see a fall in the next period due to the rise in prices as individuals will not be able to purchase all the goods and services in the economy which will result in a hamper of the circular flow of income. Higher price will lead to lower purchases which will inturn reduce sales and consequently require firms to reduce output and layoff workers. This will result in higher levels of unemployment.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

a. A decrease in the aggregate expenditures schedule causes a decline in real GDP that is...

a. A decrease in the aggregate expenditures schedule causes a decline in real GDP that is greater than the decline in the aggregate expenditures schedule because Congress will act to lower real GDP. the decrease in the aggregate expenditures schedule is multiplied into a larger change in real GDP. consumers will decide to spend less if aggregate expenditures decline. people will decide to save more. b. The magnitude of the drop in real GDP that will occur when aggregate expenditures...

What does it mean if a company's EBITDA is greater than the Capital Expenditures?

1)) A $100 billion increase in government purchases has a greater effect on real GDP than...

1)) A $100 billion increase in government purchases has a greater effect on real GDP than a $100 billion reduction in net taxes because a some of the income consumers gain from the tax reduction will be saved rather than spent b some of the income consumers gain from the tax reduction will be spent on services rather than products c some of the income consumers gain from the tax reduction will be spent on goods made in foreign countries...

what will happen to price level and Real GDP in the long run if the money...

what will happen to price level and Real GDP in the long run if the money supply increases?

Use aggregate supply and demand diagrams to explain what would happen to GDP and inflation in...

Use aggregate supply and demand diagrams to explain what would happen to GDP and inflation in the following circumstances. Remember, you start the analysis with AD and AS graphed with an equilibrium PL and Q/GDP. Then an “event” takes place. Determine if it is AD or AS, then shift the curve appropriately. Identify the new Price Level and GDP. Say if equilibrium PL increases/decreases and equilibrium GDP increases or decreases. Consumers decide to cut back their savings, and buy more...

Using the AD AS model, explain what will happen to the price level and real GDP...

Using the AD AS model, explain what will happen to the price level and real GDP if either the SRAS or AD curve shifts. You are told that 2 events take place and you must explain which curve shifts and in what direction.

1. Let’s look at Canada. Assume an equilibrium where Aggregate Expenditure is $1,350 billion and Real GDP in...

1. Let’s look at Canada. Assume an equilibrium where Aggregate Expenditure is $1,350 billion and Real GDP in $1,350 billion. (a) If Real GDP grew to 1,600, but AE only grew to 1,550 what is the marginal propensity to consume? 0.8 (b) From the initial state of $1,350, what change in taxes (positive or negative and actual numeric value) would bring GDP to $1,200 billion?

a) if Real GDP is more than the long-term growth trend line and Real GDP is...

a) if Real GDP is more than the long-term growth trend line and Real GDP is rising, explain the appropriate discretionary fiscal policy response that can be used to restore full-employment equilibrium. b) explain how automatic stabilisers work? c) briefly discuss 2 reasons why growing government debt may not be a bad thing.

Aggregate demand and aggregate supply schedules in Burgazistan are given as follows: Price level Real GDP...

Aggregate demand and aggregate supply schedules in Burgazistan are given as follows: Price level Real GDP demanded Real GDP supplied in the short run 75 600 400 85 550 450 95 500 500 105 450 550 115 400 600 125 350 650 135 300 700 What is the short-run macroeconomic equilibrium GDP level? (5 pts) What is the equilibrium price level? Suppose that the initial equilibrium you found in “a” is at the long run aggregate supply curve and the...

QUESTIONS The aggregate demand curve portrays the relationship between price level and real GDP. What are...

QUESTIONS The aggregate demand curve portrays the relationship between price level and real GDP. What are the three reasons this relationship is a negative or inverse relationship? Provide brief illustrations of each. Chapter 14&15 Aggregate Demand and Aggregate Supply

Subjects