The following equations describe consumption, investment, government spending, t

Question

The following equations describe consumption, investment, government spending, taxes, and net exports in the country of Economical. C = 400 + 0.80(Y - T) 1 = 500 G = 450 T = 450 X=100 In Economika, equilibrium GDP is equal to S 5450. (Round your answer the nearest dollar.) If real GDP in Economika is currently $4,450, which of the following is true? There will be an unplanned decrease in inventories, and real GDP will increase next period. There will be an unplanned increase in inventories, and real GDP will increase next period. There will be an unplanned decrease in inventories, and real GDP will decrease next period. There will be an unplanned increase in inventories, and real GDP will decrease next period. There will be no unplanned change in inventories, and real GDP will stay the same next period.

Explanation / Answer

(1) In equilibrium, Y = C + I + G + X

Y = 400 + 0.8(Y - 450) + 500 + 450 + 100

Y = 1,450 + 0.8Y - 360

0.2Y = 1,090

Y = 5,450

(2) Option (A)

Since real GDP < equilibrium GDP, the firms will sell faster than they produce and there will be unplanned inventory depletion, and firms will increase production so that real GDP will increase.

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