Answered: Explain the process by which an…

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

U.S. durable goods orders boosted by aircraft

The Commerce Department reported that orders for durable goods increased 2.1 percent in July. Orders for Boeing aircraft rebounded.

Source:

Financial

Times,

August 26, 2019

Explain the process by which an increase in durable goods orders at a constant price level changes equilibrium expenditure and real GDP.

A planned increase in durable goods is an increase in planned investment. When planned investment increases, _______.

the economy moves production into investment from consumption expenditure, government expenditure on goods and services, and exports. Real GDP decreases

real GDP cannot change unless the price level also changes

real GDP increases by an amount equal to the change in investment. Disposable income decreases to make up for the increase in investment so that the economy returns to its long-run equilibrium

real GDP initially increases by an amount equal to the change in investment. Disposable income increases, which increases consumption expenditure, and real GDP increases further

The AE curve shifts _______ and equilibrium expenditure and real GDP _______.

upward; decrease

downward; decrease

upward; increase

downward; increase

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