Equilibrium expenditure is the level of expenditure at which firms' inventories are zero. firms' inventories are at the desired level. firms produce more output than they sell. aggregate planned expenditure minus planned changes in inventories equals real GDP. aggregate planned expenditure plus planned changes in inventories equals real GDP.
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This means that firms are producing goods at a rate that matches the level of demand, resulting in stable inventory levels. Show more…
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Akash M.
Consider the following components of the aggregate expenditure equilibrium model: C = 0.6 (Y – 150) + 200 Iplanned = 200 G = 175 NX = 50 Assume all model parameters are in billions of dollars. a. What is the marginal propensity to consume in this economy? b. What is the level of taxes in this economy? $ billion c. What is the equilibrium level of aggregate expenditure in this economy? $ billion d. Suppose that planned investment decreases by $25 billion. What is the new equilibrium level of aggregate expenditure in this economy? $ billion e. When planned investment decreases by $25 billion, the equilibrium level of aggregate expenditure decreases by $ billion. In this economy the expenditure multiplier is equal to .
The spreadsheet lists real GDP $(Y)$ and the components of aggregate planned expenditure in billions of dollars. $$\begin{array}{|c|c|c|c|c|c|c|c|} \hline & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} & \mathrm{F} & \mathrm{G} \\ \hline 1 & & \mathrm{Y} & \mathrm{C} & 1 & \mathrm{G} & \mathrm{X} & \mathrm{M} \\ \hline 2 & \mathrm{A} & 100 & 110 & 50 & 60 & 60 & 15 \\ \hline 3 & \mathrm{B} & 200 & 170 & 50 & 60 & 60 & 30 \\ \hline \mathbf{4} & \mathrm{C} & 300 & 230 & 50 & 60 & 60 & 45 \\ \hline 5 & \mathrm{D} & 400 & 290 & 50 & 60 & 60 & 60 \\ \hline 6 & E & 500 & 350 & 50 & 60 & 60 & 75 \\ \hline 7 & F & 600 & 410 & 50 & 60 & 60 & 90 \\ \hline \end{array}$$ a. What is aggregate planned expenditure when real GDP is $\$ 200$ billion? b. If real GDP is $\$ 200$ billion, explain the process that moves the economy toward equilibrium expenditure. c. If real GDP is $\$ 500$ billion, explain the process that moves the economy toward equilibrium expenditure.
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