13) How do irms respond to unplanned inventory changes? What is the efect on their
production and GDP?
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Written and oral communication
14) A country reports that it has an unplanned inventory increase of $1.0 trillion. Discuss
how the economy adjusts until it reaches an unplanned inventory change of $0.0 trillion.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Written and oral communication
15) Describe the relationship between aggregate planned expenditure, real GDP, and
unplanned inventory changes.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Written and oral communication
101
16) Who was Jean-Baptiste Say? How does his theory (or “law”) compare with that of John
Maynard Keynes?
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Written and oral communication
17) Compare and contrast Say’s views of the macroeconomy with that of Keynes. What does
each have to say about the economy in relationship to its potential level of real GDP?
Skill: Level 2: Using deinitions
Section: Checkpoint 14.2
Status: Old
AACSB: Written and oral communication
102
18) The above table presents data for the nation of Economica.
a. What is the aggregate planned expenditure and unplanned inventory change at each
level of real GDP?
b. At what level of real GDP is equilibrium expenditure achieved?
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
103
19) The above table gives information for the nation of North Hampton. There are no
imports to or exports from North Hampton.
a. Find aggregate planned expenditure for each level of real GDP.
b. What is the equilibrium level of real GDP?
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
104
20) The above table gives information for the nation of East Hampton.
a. Find aggregate planned expenditure for each level of real GDP.
b. What is the MPC?
c. What is the equilibrium level of real GDP?
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
105
21) The above igure shows the AE curve and 45° line for an economy.
a. If real GDP equals $10 trillion, how do irms’ inventories compare to their planned
inventories?
b. If real GDP equals $20 trillion, how do irms’ inventories compare to their planned
inventories?
c. What is the equilibrium level of expenditure? Why is this amount the equilibrium?
Skill: Level 3: Using models
Section: Checkpoint 14.2
Status: Old
AACSB: Analytical thinking
14.9 Essay: Expenditure Multipliers
1) What efect does an increase in the MPC have on the slope of the AE curve?
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Analytical thinking
106
2) Explain what happens to equilibrium expenditure if autonomous expenditure increases
by $100 million.
Skill: Level 2: Using deinitions
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
3) Explain why the expenditure multiplier is greater than 1.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
4) Explain the basic idea of the expenditure multiplier and the role consumers play in
determining its magnitude.
Skill: Level 3: Using models
Section: Checkpoint 14.3
Status: Old
AACSB: Written and oral communication
5) “If the marginal tax rate is high enough, the expenditure multiplier can be negative.” Is
the previous statement correct or incorrect?
107