Discuss the relationship between the business cycle and changes ...

[karateprodigy]

Discuss the relationship between the business cycle and changes in autonomous expenditures.
 
  What will be an ideal response?

Question 2

The short-run Phillips curve is another way of looking at
 
  A) aggregate supply.
  B) Okun's Law as applied to aggregate demand.
  C) potential GDP.
  D) aggregate demand.
  E) the natural rate of unemployment.

[parker125]

Answer to Question 1

An increase in autonomous expenditure increases aggregate planned expenditure. At the moment the economy turns the corner into expansion, aggregate planned expenditure exceeds real GDP. Firms' inventories become less than their target levels, so firms increase production in order to build up their inventories. The reverse happens when a recession begins. A decrease in autonomous expenditure decreases aggregate planned expenditure. When the economy turns the corner into recession, aggregate planned expenditure is less than real GDP. As a result firms' inventories exceed their target levels, and so firms decrease production in order to decrease their inventories.

Answer to Question 2

A

[karateprodigy]

Correct answers!

[parker125]

Great! Please up vote