This topic contains a solution. Click here to go to the answer

Author Question: If real GDP exceeds aggregate planned expenditure, what happens to a firm's unplanned inventories? ... (Read 121 times)

Charlie

  • Hero Member
  • *****
  • Posts: 640
If real GDP exceeds aggregate planned expenditure, what happens to a firm's unplanned inventories?
 
  What will be an ideal response?

Question 2

What is a currency drain? How and why does it affect the money multiplier?
 
  What will be an ideal response?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

mariahkathleeen

  • Sr. Member
  • ****
  • Posts: 337
Answer to Question 1

If real GDP exceeds aggregate planned expenditure, firms are producing more goods and services than households, firms, and governments are planning to buy. As a result, firms will not be able to sell all of their production. The unsold amounts will wind up in their inventories and so unplanned inventory increases.

Answer to Question 2

An increase in currency held outside the banks is a currency drain. A currency drain decreases the size of the money multiplier. The money multiplier exists because when banks loan their excess reserves, the funds wind up in other banks as excess reserves, where they are loaned once again. As a result, an initial increase in reserves and the monetary base wind up increasing the quantity of money by a magnified amount. A currency drain means that when banks make loans, some of the funds are taken out as cash and not deposited back in another bank. Thus the other banks' excess reserves do not increase as much, so the amount that they can loan is decreased. The decrease in loans means that the ultimate increase in the quantity of money is less, so that the money multiplier is smaller.




Charlie

  • Member
  • Posts: 640
Reply 2 on: Jun 29, 2018
YES! Correct, THANKS for helping me on my review


bigcheese9

  • Member
  • Posts: 333
Reply 3 on: Yesterday
Wow, this really help

 

Did you know?

More than 30% of American adults, and about 12% of children utilize health care approaches that were developed outside of conventional medicine.

Did you know?

The FDA recognizes 118 routes of administration.

Did you know?

Sperm cells are so tiny that 400 to 500 million (400,000,000–500,000,000) of them fit onto 1 tsp.

Did you know?

Cytomegalovirus affects nearly the same amount of newborns every year as Down syndrome.

Did you know?

Historic treatments for rheumatoid arthritis have included gold salts, acupuncture, a diet consisting of apples or rhubarb, nutmeg, nettles, bee venom, bracelets made of copper, prayer, rest, tooth extractions, fasting, honey, vitamins, insulin, snow collected on Christmas, magnets, and electric convulsion therapy.

For a complete list of videos, visit our video library