What differentiates the planned equilibrium level of investment from disequilibrium levels of investment? Explain.
What will be an ideal response?
Planned investment differs from unplanned investment by the changes in inventories. If inventories exceed the planned level, then producers will want to reduce output. If inventories are less than the planned level, then producers will want to expand output. Only when inventories are at the planned level will there be an equilibrium level of GDP.
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The demand for microwaves in a certain country is given by: D = 8,000-30P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10P. If this economy opens to trade while the world price of a microwave is $50, and the government imposes a tariff of $30 per microwave, then this country will ________ microwaves.
A. export B. import 400 C. import 800 D. export 800
Before the Great Depression of the 1930s, most economists believed that
A. only active government policy could prevent recessions or inflation. B. a capitalist economy had a natural tendency to cure recessions or inflation. C. a capitalist economy had a natural tendency to inflation. D. recessions and depressions were inevitable until the economy broke down completely.
If international capital flows are not very responsive to interest rates, the initial impact of expansionary fiscal policy will
A. be totally ineffective. B. result in a deficit in the overall balance of payments. C. lead to a current account surplus. D. result in a significant deterioration in the financial account.
Starting from long-run equilibrium, a war that raises government purchases results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; potential C. higher; higher D. lower; higher