Safari ?? 5% MINDTAP Q. Search this course A Chapter 09: The Keynesian Model in
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Question
Safari ?? 5% MINDTAP Q. Search this course A Chapter 09: The Keynesian Model in Action: End of Chapter Questions Use the ieformation in this taole to answer the following questions. Hint: Assume ths is a closed economy without an international sector, thus Employment, Output, Consumption, and Unplanned Inventory Possible Levels of Employment Real GoP (output) Equals Disposable Income Consumption Investment Biltions of s 50 s0 50 50 50 s0 so 300 S0 400 6s using the information in the previous table if autonomous investment changes to siso biltion, the eulbrium level of output will be biltion with an equilbrium level of employment of million workers. Full employment represents the full-employment level of real GOP Is $525 btion, and given the values in the table, Iif autonomous investment is $150 billion, the economy wil pressure on prices as buyers compete for imited real output. To reduce this probiem so the economy can return to real ful-employment equilibrum. n the economy, aggregate expendinures need toExplanation / Answer
Answer
In equilibrium Real GDP = Aggregate Expenditure and hence at equilibrium we have,
Y (Real GDP) = C + I
According the above table it occurs when Y(Real GDP) = 375. Because at that point Aggregate expenditure = C + I = 325 + 50 = 375.
Equilibrium level of GDP = $375
Full level employment output level is 525. As Full level employmment output level is greater than equilibrium. We have Deflationary Gap.
If Autonomous Investment increases Then according to above table
According the above table equilibrium occurs when Y(Real GDP) = 575. Because at that point Aggregate expenditure = C + I = 425 + 150 = 575.
New Equilibrium level of GDP = $575
Equilibrium level of employment = 65 Million workers
Full level employment output level is 525. As Full level employmment output level is lesser than equilibrium. We have Inflationary Gap.
This will leads to Increase in Consumption(or excess aggregate Expenditure) which results in high (or excess) pressure on Prices.
Hence Aggregate Expenditure need to reduce (or decline), so that economy can return to full employment equilibrium.
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