Question 1) a) Using the table below, calculate the unplanned change in inventor
ID: 1114882 • Letter: Q
Question
Question 1) a) Using the table below, calculate the unplanned change in inventories for each level of GDP, and explain what will happen to GDP or production in the economy? Unplanned Change in AggregateInventories Planned Real GDP Planned Government Net Real GDP Consumption InvestmentPurchases enditure $2,000 2,500 3,000 3,500 $1,600 2,000 2,400 2,800 $250 250 250 250 $250 250 250 250 orts $100 100 100 100 b) Identify the level of real GDP at which the economy is in equilibrium. Explain why is that particular level of real GDP the equilibrium in the short run? c) Graphically show the short run equilibrium based on the above data with the help of the Keynesian crossExplanation / Answer
Reasl GDP
Consumption
Planned Investment
Government Purchases
Net Exports
Planned Aggr. Expenditure
Unplanned change in inventories
Real GDP will
2000
1600
250
250
100
1600+250+250+100=
2200
2000-2200=
-200
Increase
2500
2000
250
250
100
2000+250+250+100=
2600
2500-2600=
-100
Increase
3000
2400
250
250
100
2400+250+250+100=
3000
3000-3000=
0
equilibrium
3500
2800
250
250
100
2800+250+250+100=
3400
3500-3400=
100
decrease
Aggregate Expenditure;- Consumption +Planned Investment + Govt Spending +Net exports
Answer:-
The point where aggregate expenditure = real GDP, the equilibrium is obtained. The value of aggregate expenditures is shown in the above table for different levels of real GDP.
The unplanned change in inventories can be seen as the difference between the real GDP and aggregate expenditure. IN case of decreased unplanned inventories, the selling of goods is resulting more than it was planned. Thus the production has to be increased.
In case , there is an increase in the unplanned inventories, it means the selling is less than as it was planned and therefore the production has to be reduced.
Reasl GDP
Consumption
Planned Investment
Government Purchases
Net Exports
Planned Aggr. Expenditure
Unplanned change in inventories
Real GDP will
2000
1600
250
250
100
1600+250+250+100=
2200
2000-2200=
-200
Increase
2500
2000
250
250
100
2000+250+250+100=
2600
2500-2600=
-100
Increase
3000
2400
250
250
100
2400+250+250+100=
3000
3000-3000=
0
equilibrium
3500
2800
250
250
100
2800+250+250+100=
3400
3500-3400=
100
decrease
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