Author Question: In the above diagram, what happens if the real GDP is 3 trillion? 5 trillion? 7 trillion? What is ... (Read 127 times)

cherise1989 · **on:** Jun 30, 2018

In the above diagram, what happens if the real GDP is 3 trillion? 5 trillion? 7 trillion? What is the equilibrium level of real GDP? Why?

What will be an ideal response?

Question 2

Technical support provided by an Indian firm to a multinational company headquartered in New York is an example of a(n) ________.

A) capital account transaction B) export of services by India
C) transfer payment to the U.S. D) import of services by India

AISCAMPING · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

At real GDP of 3 trillion, planned real investment is greater than real saving, which means households are buying more than producers had anticipated. There is an unplanned inventory decrease of 500 billion, and businesses increase production and hiring. At 5 trillion, planned real investment and planned real saving are equal, so this is the equilibrium. At 7 trillion, planned real saving is greater than planned real investment so there is an unplanned increase in inventories of 500 billion. Businesses reduce production and lay off workers, forcing real GDP back towards 6 trillion.

Answer to Question 2

B