-The Above Figure Shows the AE Curve and 45° Line

question 477

Essay

-The above figure shows the AE curve and 45° line for an economy.
a) If real GDP equals $6 trillion, how do firms' inventories compare to their planned inventories?
b) If real GDP equals $12 trillion, how do firms' inventories compare to their planned inventories?
c) What is the equilibrium level of expenditure? Why is this amount the equilibrium?

---

Definitions:

Cash-Out Situation

A scenario where an individual withdraws funds from an investment or refinances a property to access the equity built up, often resulting in immediate liquid cash.

Restrictive Policy

A policy that limits or restricts certain actions, typically implemented to control financial practices or prevent excessive risk-taking.

Inventory

The total amount of goods and materials held by a company intended for sale or used in the production of goods sold.

Optimal Current Asset Holdings

Refers to the ideal mix of cash and other current assets a company maintains to meet its operational and investment needs effectively and efficiently.