The following table shows some information on a hypothetical economy. The table lists real GDP, consumption (C), investment (I), government spending (G), net exports (X – M), and aggregate expenditures (AE). In this problem, assume that investment, government spending, and net exports are independent of the economy's real GDP level. Real GDP C I G X – M AE Unplanned Inventory Investment
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The following table shows some information on a hypothetical economy. The table lists real GDP, consumption (C), investment (I), government spending (G), net exports (X – M), and aggregate expenditures (AE). In this problem, assume that investment, government spending, and net exports are independent of the economy's real GDP level.
| Real GDP | C | I | G | X – M | AE | Unplanned Inventory Investment | Direction of Real GDP and Employment |
|---|---|---|---|---|---|---|---|
| $100 | $275 | $100 | $110 | -$345 | -$40 | ||
| $200 | $100 | $110 | -$345 | $220 | -$20 | ||
| $300 | $435 | $100 | $110 | -$345 | $0 | ||
| $400 | $100 | $110 | -$345 | $380 | $20 | ||
| $595 | $100 | $110 | -$345 | $460 | $40 |
Using the numbers provided in the table, enter the correct numbers in the empty cells. Then, using the dropdown selection menus in the right-most column, indicate whether output will tend to increase, decrease, or remain in equilibrium at each level of real GDP in the table. (Note: The table uses negative numbers to indicate an unplanned inventory investment depletion and positive numbers to indicate an unplanned inventory investment accumulation.)
True or False: The most fundamental assumption behind the aggregate expenditures model is that prices in the economy are flexible.
True
False
When aggregate expenditures are less than real GDP, there is an unplanned inventory investment . This will prompt firms to employment and production.
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