Refer to the table below. If planned investment is $15 billion, then at the $560

Question

Refer to the table below. If planned investment is $15 billion, then at the $560 billion level of output, there will be a(n). unplanned increase in inventories of $5 billion Unplanned increase in inventories of $10 billion Unplanned decrease in inventories of $5 billion Unplanned decrease in inventories of $10 billion The short-run aggregate supply curve shows the inverse relationship between the price level and real GDP purchased inverse relationship between the price level and real GDP produced Direct relationship between the price level and real GDP purchased To close an inflationary expenditure gap of $20 billion in an economy with a marginal propensity to consume of 0 8, it would be necessary to: Decrease the aggregate expenditures schedule by $20 billion Decrease the aggregate expenditures schedule by $4 billion Increase the aggregate expenditures schedule by $20 billion Increase the aggregate expenditures schedule by $4 billion

Explanation / Answer

19.The short-run aggregate supply curve captures the relation between real production and the price level. As the price level rises, real production is greater. As the price level falls, real production also declines.Thus it shows the direct relationship between price and real GDP produced.

20.An inflationary gap. Aggregate expenditures will be excessive, causing demand-pull inflation. Aggregate expenditures would have to fall by $20 billion at each level of GDP to eliminate the inflationary gap.

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