Question

Short Answer 1. Complete the table below where the cells are blank. (10 pts) Output | Copsmp Saving Inystmpt | Export Import Net Agg Unplod Output GDP=DI Exports Exp Invent & Emploxmnt 250 260 270 295 15 10 | 10 310 330 310 15 17 5 T 2. What number is unplanned inventories at output of $270 million? Explain what the unplanned inventories number means at that output level? (2 pts) 3. At $330 million of output what must happen in this open economy to reach equilibrium? (2 pts) 4. Equilibrium is achieved at what level of output? What is happening in the economy at that level?

Answer 1

Output GDP=DI	Consump	Saving	Investment	Export	Import	Net Export	Agg. Exp	Unplnd Invest	Output & Employment
250	260	-10	10	8	3	5	275	-25	RISE
270	270	0	10	10	5	5	285	-15	RISE
290	280	10	10	12	7	5	295	-5	RISE
310	295	15	10	15	10	5	310	0	Remain Unchanged
330	310	20	10	17	12	5	325	5	FALL

Agg. Exp = Consumption + Investment +Net Export.

GDP = consumption + saving.

Unplanned Investment = GDP - Agg. Exp

(2) At an output of $270 million, the unplanned inventories are negative 15 million (i.e., -15 million). It means at an output level of $270 million the aggregate expenditure is higher than output by $15 million.

(3) At equilibrium GDP = Aggregate Expenditure.

At $330 million of output, the unplanned investment is $5 million, it means aggregate expenditure falls short by $5 million to reach the equilibrium.

So to reach the equilibrium there is a need to increase the net export by $5 million in the open economy.

(4) Equilibrium is achieved at the output level of $310 million. At this level, there is neither increase nor decrease in output level.