Consider the Simplest Macro Model with Demand- Determined Output, Where

question 55

Multiple Choice

Consider the simplest macro model with demand- determined output, where AE = C + I. Suppose that actual national income is $900 billion and desired consumption plus desired investment is $890 billion. We can expect that

• A)firms will see an increase in inventories, and they will respond by decreasing output, thereby decreasing actual national income.
• B)firms will see a decrease in inventories, and they will respond by increasing output, thereby increasing actual national income.
• C)firms will decrease autonomous investment by $10 billion until equilibrium national income is reached at $890 billion.
• D)actual national income will increase until equilibrium national income is reached at $900 billion.
• E)firms will increase autonomous investment by $10 billion until equilibrium national income is reached at $900 billion.

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Definitions:

Direct Material

Raw materials that can be directly traced to the manufacturing of a product and are significant in cost.

Manufacturing Overhead

Consists of all indirect costs associated with the production process, including utilities, depreciation on equipment, and salaries of maintenance staff.

Manufacturing Overhead

All indirect costs associated with the manufacturing process, including expenses related to operating the manufacturing facilities.

Assembly Line

A manufacturing process in which parts are added to a product in a sequential manner to create a finished product efficiently.