Describe the role of business inventory change in determining the equilibrium level of GDP and changes in the level of GDP
Inventories work as buffers in the economy, absorbing changes in demand. A change in inventory levels indicates the relation between total spending and total production. Business managers usually have a desired level of inventories in mind and watch inventory levels carefully to determine whether orders and production should be changed. If inventories are rising in an undesired fashion, this means that sales are not keeping up with production and, therefore, production should be cut back. If inventories are falling, this means production is not keeping up with sales and, if sales are to continue, orders and production must be increased to keep pace with sales. Equilibrium output (GDP) will be that level of output where the level of desired inventories is being maintained with no unwanted increases or decreases.
You might also like to view...
Which of the following most resembles a case of statistical discrimination?
A) Judy only hires military veterans because she believes it is her patriotic duty to do so. B) Due to the consequences of his behavior as a teenager, Marcel now hates police officers and refuses to hire any retired cops as security guards for his legal marijuana co-op in Denver. C) Barney thinks that people who attended public high schools have better social skills than people who were home schooled, so he tends to hire those with public school educations as telemarketers. D) Penelope believes her customers would be frightened away by salespeople with tattoos, so she only hires people with no visible body art.
When foreign residents increase their demand for U.S. dollars, ceteris paribus,
A. Foreign residents, at the same time, reduce their supply of foreign currency to the foreign exchange market. B. The dollar will depreciate in value. C. The dollar price of foreign currency will rise. D. The dollar will appreciate in value.
According to the crowding-out view, budget deficits will:
A. reduce interest rates. B. increase interest rates and retard private investment. C. reduce the investments of foreigners in the United States. D. increase the capital stock available to future generations.
If the Federal Reserve buys government bonds from the public,
A. Demand deposits will decrease. B. Bank reserves will not change. C. The money supply will contract. D. Banks will be able to make additional loans.