Answered: 19. If the actual level of income is…

19. If the actual level of income is 36, what would be the resulting unplanned inventory investment? (a) -2 (b) zero (c) 2 (d) 4 (e) 5

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

### Graph Analysis for Educational Website

#### Diagram Explanation:
The graph presents various economic lines and equations that demonstrate relationships in an economic model. The chart is titled "E,Q" and contains the following lines:

- **Q (Output/Income)**: Represented by the highest line, showing the economy's total output or income.
- **AE (Aggregate Expenditure)**: Below the Q line, this represents total spending in the economy at different levels of income.
- **C (Consumption)**: Below the AE line, indicating consumption spending, a component of AE.
- **S (Savings)**: Positioned lower on the graph, showing the relationship between savings and income.
- **I (Investment)**: Representing planned investment levels.

The x-axis represents income/output levels, ranging from 0 to 40, and the y-axis shows expenditure (E) and quantity (Q) levels, also ranging from -4 to 40.

#### Multiple Choice Question 19:
The question asks: "If the actual level of income is 36, what would be the resulting unplanned inventory investment?"

Options:
- (a) -2
- (b) zero
- (c) 2
- (d) 4
- (e) 5

#### Question 20:
It pertains to Keynes’s Consumption function, prompting the reader to evaluate the correctness of several statements:

a) Consumption spending is a function of disposable (after-tax) income (Yd).
b) There cannot be any consumption without disposable income.
c) Total consumption spending is composed of autonomous consumption, independent of income (Ca), and induced consumption, determined by disposable income.
d) The induced consumption component is equal to a constant proportion of disposable income.
e) The induced consumption is equal to the marginal propensity to consume times disposable income.
f) The consumption function is modified in the Lecture Notes to a simplified version where consumption is a function of real income.
g) Autonomous consumption cannot be changed by other factors.

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