If real GDP equals aggregate planned expenditure, then ...

[magmichele12]

If real GDP equals aggregate planned expenditure, then inventories
 
  A) fall below their target levels.
  B) rise above their target levels.
  C) equal their target levels.
  D) are either above or below their target levels depending on whether planned inventories are above or below their target levels.
  E) None of the above answers is necessarily correct because there is no relationship between inventories and aggregate planned expenditure.

Question 2

What do the classical growth theory and the new growth theory predict for global growth amongst different nations? Comment on the accuracy of the predictions.
 
  What will be an ideal response?

[mk6555]

Answer to Question 1

C

Answer to Question 2

The classical growth theory predicts that nations will produce only the subsistence level of real GDP per person. This prediction is incorrect. According to the theory, each country is driven to the subsistence level by increased population growth whenever real GDP per person exceeds the subsistence amount. Hence the classical theory predicts that the nations with the highest levels of real GDP per person will be the nations in which real GDP per person is falling the most rapidly. This prediction also is wildly at variance with the facts.
The new growth theory predicts that nations will grow indefinitely and that the growth rate depends on the incentives within each nation to save, invest, accumulate human capital, and develop new technology. Hence the new growth theory predicts that real GDP per person will converge among some nations (those with similar incentives) while the gaps in real GDP per person among other nations will persist. This prediction is accurate.