ECON 1100 Lecture Notes - Lecture 11: Equilibrium Point

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copperbadger717

26 Oct 2016

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Inventories- the stock of goods held to satisfy future needs. Inventory investment- it is the value of what is added to or subtracted from the stock of goods in inventory. Unplanned inventory investment- this investment or disinvestment occurs when sales are either more of less than the amounts planned or expected. Actual investment spending- it is equal to planned investment spending plus the unplanned inventory investment (i= i planned + i unplanned inventory investment) unanticipated/what is left. The industry has an inventory of 200,000 automobiles. It plans to produce 800,000 units, but only sells 700,000. As a result, the inventory increased by 100,000. Had the inventory sold 900,000, this would have amounted to unplanned inventory investment of - You do not want to produce more than you sold. As a result, firms may end up with more or fewer units of goods in their inventories. If inventories go down, this represents a negative investment.

Related Questions

1. The multiplier helps explain

A. why a decrease in taxes causes real Gross Domestic Product (GDP) to fall by more than the amount of the decrease in taxes.

B. why a fall in investment cause real Gross Domestic Product (GDP) to rise by more than the amount of the decrease in investment.

C. why a rise in government expenditures causes real Gross Domestic Product (GDP) to rise by more than the amount of the increase in government spending.

D. why an increase in disposable income causes real Gross Domestic Product (GDP) to rise by less than the amount of the increase in disposable income.

2. If the marginal propensity to save (MPS) increases, the multiplier

A. decreases.

B. can either increase or decrease, depending on what happens to the marginal propensity to consume (MPC).

C. stays the same.

D. increases.

QUESTION 60

The investment function will shift when there is a change in

		A. the opportunity cost of retained earnings.
		B. firms' profit expectations.
		C. the cost of borrowing.
		D. the interest rate.

1.43 points

QUESTION 61

In the Keynesian model, whenever planned saving exceeds planned investment,

		A. there will be unplanned inventory accumulation.
		B. real GDP will not be influenced.
		C. the interest rate will remain unchanged.
		D. there will be unplanned inventory depletion.

1.43 points

QUESTION 62

In the Keynesian model, whenever planned saving is less than planned investment,

		A. there will be unplanned inventory depletion.
		B. the interest rate will remain unchanged.
		C. there will be unplanned inventory accumulation.
		D. real GDP will not be influenced.

1.43 points

QUESTION 63

Government purchases

		A. are determined by the political process.
		B. are determined by the public.
		C. are influenced by interest rates.
		D. are determined by suppliers.

1.43 points

QUESTION 64

If, at some level of output, total planned real expenditures are less than real Gross Domestic Product (GDP),

		A. real GDP will either fall or remain unchanged, depending on the MPC.
		B. real GDP will rise.
		C. real GDP remains unchanged.
		D. unplanned inventories will increase and real GDP will fall.

1.43 points

QUESTION 65

When the economy is operating at the equilibrium level of GDP, we know that

		A. total planned real expenditures equal real GDP.
		B. real net exports equal inventory changes.
		C. planned real investment spending equals real net exports of zero.
		D. total planned real consumption expenditures equal real GDP.

1.43 points

QUESTION 66

One divided by the marginal propensity to save (MPS) is the formula for

		A. the inverse of the multiplier.
		B. the multiplier.
		C. one minus the multiplier.
		D. autonomous consumption.

QUESTION 67

Thinking like an economist would, which is true of investment?

		A. Investment represents spending on capital goods.
		B. Investment is a stock concept.
		C. Investment is putting money into stocks and bonds.
		D. It is the portion of disposable income that is not used for consumption or saving.

QUESTION 68

Other things being equal, if input prices rise in a country, then there would be

		A. cost-push inflation.
		B. demand-pull inflation.
		C. cost-pull deflation.
		D. more production and a lower price level.

QUESTION 69

In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that

		A. existing capital equipment can be used more intensively.
		B. wage rates rise almost simultaneously with the price level.
		C. the unemployment rate usually rises dramatically along with the price level.
		D. workers can be switched from counted to uncounted production.

fuchsiaclam197

Assignment 4 (Chapter 23) Sequestration 2013

Dear Colleagues,

Using the goods and services model from the text (what I have labeled the 'Commodities Model' in my syllabus or the Keynesian Cross), please offer a basic analysis of the sequestration of expenditures by the Federal Government that took effect on March 1^st. Please limit your analysis to an expenditure equation containing only personal consumption expenditures (C) and planned investment (I_o). (The aggregate expenditures equation would be limited to AE = C + I_o_.) Please note that I want you to ignore the impact of any direct reduction in governmental expenditures upon aggregate expenditures as is discussed in chapter 24. In particular, discuss and model the effects of the Sequestration on C. Also, would there be a possible effect on I_o? Please explain the conclusions that you reach. Before beginning your analysis please read the articles listed below:

Sequestration: The Truth Behind The Spending Cut, Mani.

http://www.istockanalyst.com/finance/story/6318811/sequestration-the-truth-behind-the-spending-cuts

Paragraph 7 in particular in the article above

Fiscal Multipliers, the IMF & the OBR, Weldon, Duncan.

http://touchstoneblog.org.uk/2012/10/fiscal-multipliers-the-imf-the-obr/

Deleveraging Shocks and the Multiplier (Sort of Wonkish), Krugman, Paul,

http://krugman.blogs.nytimes.com/2012/10/09/deleveraging-shocks-and-the-multiplier-sort-of-wonkish/

In your analysis, please use the Keynesian Theory of Consumption as the model to represent household expenditures. You may assume that the aggregate expenditure function (line) has only consumers and business, and business expenditures are not dependent upon income (as presented in the text).

Of what importance is the discussion of the multiplier mentioned in the last two articles?

Is it possible that business expectations about the future will change?

What would change in the model as a result of this change in expectations (Please discuss the potential impact on inventories)?

As you perform your analysis, you do not have to specify exact values on the axes. Your response will be graded upon your ability to determine the direction in which incomes will change, either increasing or decreasing, due to the sequestration and if the change will be large or small. (Recall that income, Y, is represented on the horizontal axis in the Keynesian Cross model.) In your model, be sure to begin your analysis with aggregate expenditures at pre-sequestration levels and equilibrium income. Then indicate the appropriate movement of the consumption function and business planned investment and the effect on equilibrium income.

Also, provide a brief explanation of how unplanned investment would change as a result of the sequestration and how the unplanned investment causes equilibrium income to increase or decrease.

The book Principles of Economics, Tenth Edition, Chapter 23 - Sequestration 2013.

tealhamster375

1) In which of the three market arenas is each of the following goods traded?

A) U.S Treasury Bonds

B) An Amazon Kindle

C) A Harley-Davison Soft tail motorcycle

D) The business knowledge of Dallas Mavericks%u2019 owner Mark Cuban

E) Shares of Google stock

F) The crop-harvesting abilities of an orangen picker in Florida

2) Explain why imports are subtracted in the expenditure approach to calculating GDP (Gross domestic product)?

3) Go to www. bls.org and click on the links for the state and area employment and unemployment. Look at your home state and describe what changes have taken place in the workforce (in this case California). Has the labor force participation rate gone up or down? Are the state%u2019s experiences the same as the rest of the country? Provide an explanation of why your state%u2019s experiences are the same as or different from the rest of the country?

4) The following questions refer to this table:

Aggregate Consumption Planned

Output/ Income investments

2,000 2,100 300

2,500 2,500 300

3,000 2,900 300

3,500 3,300 300

4,000 3,700 300

4,500 4,100 300

5,000 4,500 300

5,500 4,900 300

A) At each level of output, calculate saving. At each level of output, calculate unplanned investment (inventory change).

What is likely to happen to aggregate output if the economy produces at each of the levels indicated? What is the equilibrium level output?

5) For each of the following, determine whether it is an asset or a liability on the accounting books of a bank. Explain why in each case.

Cash in the vault

Demand deposits

Savings deposits

Reserves

Loans

Deposits at the Federal Reserve

plumdeer95

ECON 1100 Lecture Notes - Lecture 11: Equilibrium Point

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