Suppose that firms find that their inventories are less than planned. In this case, what is the initial relationship between aggregate planned expenditure and real GDP? Using the aggregate expenditure model, what adjustments, if any, take place?
What will be an ideal response?
If inventories are less than planned, aggregate planned expenditure exceeds real GDP. In order to restore their inventories to their desired levels, firms will increase their production. As a result, real GDP increases. Inventories remain less than planned and real GDP continues to increase until eventually real GDP reaches its equilibrium level, at which point actual and planned inventories are equal.
You might also like to view...
Explain how indirect crowding out can offset expansionary fiscal policy
What will be an ideal response?
In a competitive industry
a. firms sell more if price is above marginal cost b. firms sell more is price is below marginal cost c. firms sell less if price is above marginal cost d. none of the above
If the Fed wishes to reduce the money supply, it can sell U.S. government securities to member banks
a. True b. False Indicate whether the statement is true or false
Which of the following types of agents moves international cargo, facilitates shipment tracking, and handles product returns for exporters and importers?
A) trade intermediaries B) third party logistics C) customs brokers D) freight forwarders