Question:
At the real output level of Rs. 600 billion, there is
(1) an accumulation of unplanned stocks of Rs. 200 billion.
(2) a reduction of unplanned stocks of Rs.200 billion.
(3) an accumulation of unplanned stocks of Rs. 150 billion.
(4) a reduction of unplanned stocks of Rs. 150 billion.
(5) a macroeconomic equilibrium in the economy.
Correct Answer:
(3)
Answer Explanation:
Based on the aggregate expenditure graph parameters described in the question, the equilibrium (where E crosses the 45-degree line) is at 400, and the y-intercept is 300. The equation is $E = 300 + 0.25Y$. At an output level of $Y = 600$, planned expenditure is $E = 300 + 0.25(600) = 450$. Because actual output (600) is greater than planned expenditure (450), the unsold 150 billion becomes an unplanned accumulation of inventory stocks.
Topic: Macroeconomic Equilibrium Year: 2020
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