Question

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 11) As long as income is above planned aggregate expenditure, unplanned inventory reductions have occurred. 12) Actual investment equals planned investment plus unplanned changes in inventories. 13) Firms react to an unplanned inventory investment by increasing output 14) If the MPC is 0.8, then the multiplier is 0.2 15) If the MPS is 0.25, then the multiplier is 4. 16) When the economy is in equilibrium, savings equals planned investment. 17) A multiplier of 1 means the MPS is equal to 1. 18) The larger the MPC, the smaller the multiplier. 19) If actual investment is greater than planned investment, unplanned inventories decline. 20) Firms' investments include inventories.

help

Answer 1

11) False. If income is greater than PAE, it means there is an unplanned inventory investment not reduction because demand is less than supply of goods and services

12) This is true.

13) False. Firms will decrease production if inventory is piling up

14) False, multiplier is 1/(1-MPC) = 1/(1-0.8) = 5

15) True

16) True

17) True

18) True

19) False. They will accumulate

20) false. It includes change in inventories