Where does equilibrium occur in an income expenditure diagram? What would be the effect if production is at either on the left or right side of the equilibrium point?
What will be an ideal response?
Equilibrium occurs at appoint at which the aggregate demand curve intersects the 45° line. To the left of the equilibrium point, the expenditure line lies above the 45° line. This means that total spending exceeds total output. Hence, inventories will be falling and firms will conclude that they should increase production. Thus, production will rise toward the equilibrium point. The opposite is true to the right of the equilibrium point. Here spending falls short of output, inventories rise, and firms will cut back production.
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Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; potential B. recessionary; higher; potential C. recessionary; lower; lower D. expansionary; higher; higher
Use the following table to answer the question below.Alexandra's Production Possibilities ScheduleNatalia's Production Possibilities ScheduleNumber of Scarfs Knitted per dayNumber of Sweaters Knitted per dayNumber of Scarfs Knitted per hourNumber of Sweaters Knitted per hour040433236242916112080Who should specialize in knitting scarves?
A. Natalia B. Alexandra C. Both Natalia and Alexandra D. Neither Natalia nor Alexandra
If the center nation operates under a cooperative peg agreement, how does the cooperation work?
A) The home nation will try to resist any changes coming from the center. B) The home nation will accept all changes coming from the center without discussion. C) The center nation will make policy concessions to other nations in its cooperative currency agreement. D) Cooperation usually does not work well.
The formula for AVC is
A. ?TVC/?q. B. ?q/?TVC. C. TVC/q. D. q/TVC.