If real GDP and aggregate expenditure are less than equilibrium expenditure, what happens to firms' inventories? How do firms change their production? And what happens to real GDP?
What will be an ideal response?
If real GDP and aggregate expenditure are less than their equilibrium levels, an unplanned decrease in inventories occurs. The unplanned decrease in inventories leads firms to increase production to restore inventories to their planned levels. The increase in production increases real GDP.
You might also like to view...
Improvements in technology shift the per-worker production function downward
a. True b. False Indicate whether the statement is true or false
Which of the following is a part of the sequence of events that links the change in the money supply by the Fed to investment demand?
a. An increase in the money supply lowers the interest rate, which in turn reduces the quantity of investment demanded. b. An increase in the money supply lowers the interest rate, which in turn increases the quantity of investment demanded. c. An increase in the money supply raises the interest rate, which in turn reduces the quantity of investment demanded. d. An increase in the money supply raises the interest rate, which in turn increases the quantity of investment demanded.
Which of the following would be considered an implicit cost?
A. Health insurance of employees paid for by the firm B. The water bill of the firm C. The salaries paid to the managers of the firm D. Foregone rent on assets owned by the firm
The hypothesis that regulators eventually adopt policies that benefit the producers in the industry is known as the
A) capture hypothesis. B) producers' hypothesis. C) share-the-gains, share-the-pains hypothesis. D) it's-a-rip-off hypothesis.