Author Question: The above figure shows the AE curve and 45 line for an economy. a. If real GDP equals 10 ... (Read 26 times)

Lobcity · **on:** Jun 29, 2018

The above figure shows the AE curve and 45 line for an economy.

a. If real GDP equals 10 trillion, how do firms' inventories compare to their planned inventories?
b. If real GDP equals 20 trillion, how do firms' inventories compare to their planned inventories?
c. What is the equilibrium level of expenditure? Why is this amount the equilibrium?

Question 2

If wealth ________, then saving increases, which is shown by a ________.

A) decreases; rightward shift of the supply of loanable funds curve
B) decreases; movement downward along the supply of loanable funds curve
C) increases; rightward shift of the supply of loanable funds curve
D) increases; leftward shift of the supply of loanable funds curve
E) increases; movement upward along the supply of loanable funds curve

Gabe · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

a. If real GDP equals 10 trillion, aggregate expenditure exceeds GDP and so firms' inventories are less than planned.
b. If real GDP equals 20 trillion, aggregate expenditure is less than GDP and so firms' inventories are more than planned.
c. The equilibrium level of expenditure is 15 trillion because at this level of GDP, aggregate expenditure equals GDP. As a result, firms' inventories equal planned inventories so firms have no incentive to either increase or decrease production.

Answer to Question 2

A