Suppose that in 2016, all prices in the economy double and that ...

[javeds]

Suppose that in 2016, all prices in the economy double and that all wages and salaries also double. In 2016 you
 
  A) are no better off or worse off than you were in 2015 as the purchasing power of your salary has remained the same.
  B) are better off than you were in 2015 as your salary is higher than it was in 2015 and you can now buy more goods and services.
  C) are worse off than you were in 2015 as you can no longer afford to buy as many goods and services.
  D) cannot determine whether you are better off or worse off than you were in 2015, because the purchasing power of your salary cannot be determined.

Question 2

Refer to Table 23-10. Using the table above, calculate the unplanned change in inventories for each level of GDP, and explain what will happen to GDP?
 
  What will be an ideal response?

[kthug]

Answer to Question 1

A

Answer to Question 2

The macroeconomic equilibrium is determined where aggregate expenditure = real GDP. The values for aggregate expenditure for each level of real GDP are given in the table below. The unplanned change in inventories is the difference between aggregate expenditure and real GDP. If there is an unplanned decrease in inventories, firms are selling goods faster than they planned, and this is a signal for firms to increase production. If there is an unplanned increase in inventories, firms are selling goods more slowly than they expected, and this is a signal for firms to decrease production.

Real GDP Aggregate Expenditure Unplanned Change in Inventories Real GDP Will...
2,000 2,200 -200 increase
2,500 2,600 -100 increase
3,000 3,000 0 be in equilibrium
3,500 3,400 100 decrease