Question

c. For each level of actual aggregate expenditure, calculate unplanned inventory investment. Instructions: Enter numerical values into the table. Enter whole numbers only. If the value is negative, you must enter a minus sign. d. What is the equilibrium level of aggregate expenditure in this economy? Instructions: Enter a numerical value rounded to two decimal places as necessary. e. For each level of actual aggregate expenditure, label the future output tendency as "increase," "decrease," or "same" based on what you expect to happen to future output. Instructions: Fill in the last column of the table. f. At the equilibrium level of aggregate expenditure, which of the following are true? Instructions: Click each box to empty the box and then click each box to select the correct answers. There may be more than one correct answer. Firms have no incentive to change the level of their output. ? Unplanned investment is positive. ? Unplanned investment is zero. ? Consumption is maximized.

Answer 1

Solution:-

Actual aggregate Expenditure	Consumption	Planned investment	Government spending	Net exports	Unplanned Investment	Future Output
500	300	90	115	85	-90	Increase
600	355	90	115	85	-45	Increase
700	410	90	115	85	0	No Change
800	465	90	115	85	45	Decrease
900	520	90	115	85	90	Decrease

1. MPC = change in consumption / change in AE
2.           = 55/100
3.           = 0.55
4. Planned investment (Ip), Government spending (G) and Net exports (NX) are assumed autonomous expenditure so Option(A)
5. Unplanned Inventory Investment = AE-(C+PI+G+NX)
6. The equilibrium level of aggregate expenditure in this economy = 700 with UI=0
7. Filled in the table
8. Option (C) :- Unplanned Investment is Zero