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This year, the aggregate quantity supplied by sellers in the United States is $5 trillion worth of goods and services. The aggregate quantity demanded by buyers during the same year is $4.5 trillion worth of goods and services. It follows that

(a) at the current price level, there will be unintended build-up of inventories, which will cause real GDP to decline as producers reduce orders for new products and reduce employment.
(b) at the current price level, there will be unintended reduction of inventories, which will cause real GDP to increase as producers increase orders for new inventory and increase employment.
(c) the economy is in macroeconomic equilibrium at the current price level.
(d) the price level is likely to increase.

2006-11-29 14:00:09 · 2 answers · asked by Anonymous in Social Science Economics

2 answers

(a) at the current price level, there will be unintended build-up of inventories, which will cause real GDP to decline as producers reduce orders for new products and reduce employment.

2006-11-29 14:55:08 · answer #1 · answered by JuanB 7 · 1 0

Yeah, (a)... because there's more supply than demand and eventually there will be a build-up of inventories if prices stay the same. Then producers can't sell the built-up inventory at the same price and can't afford the same goods and services they buy. They have to reduce their spending on new products and/or reduce employment.

2006-11-29 20:18:34 · answer #2 · answered by Carrasco 2 · 0 0

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