In the Keynesian model with government and the foreign sector added, what are the components of spending? Which of these components are autonomous and which are NOT? How is the equilibrium found? When the economy is NOT at an equilibrium, what adjustments are made?
What will be an ideal response?
There are four components to spending-consumption, investment, government, and net exports. The last three are autonomous and consumption has an autonomous part to it. However, consumption is also a function of income. Equilibrium is found at the point at which total planned real spending (C + I + G + X) exactly equals real Gross Domestic Product (GDP). When the economy is not at an equilibrium, adjustments are made by unplanned inventory changes.
You might also like to view...
The short-run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13, and MC = MR = $17.47 . Which of the following is true?
a. Per-unit profit is $11. b. Additional firms will be attracted into the industry. c. The firm could raise price and increase profits. d. The firm could lower price and increase profits. e. Average cost must be rising.
Real GDP is calculated because
a. it is a much better measure of economic behavior than nominal GDP b. the value of the dollar is increasing c. it allows us to make comparisons between countries d. nominal GDP has no theoretical foundation e. nominal GDP is corrected for inflation
In which of the following cases should the United States produce more noodles than it wants for its own use and trade some of those noodles to Italy in exchange for wine?
a. Americans know less than Italians know about cooking noodles. b. The United States has an absolute advantage over Italy in producing noodles. c. Italy has a comparative advantage over the United States in producing wine. d. The opportunity cost of producing a gallon of wine is the same for Italy as it is for the United States.
Which of the following would be considered a factor of production in the provision of bus service?
A. The amount it costs to provide bus service between two locations. B. The hourly wage paid to bus drivers. C. The revenue from the sale of bus tickets. D. Bus drivers.