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.

---

Definitions:

Home Construction

The process of building or assembling a residential dwelling, which involves planning, design, obtaining permits, and actual construction activities.

Job Order Costing

An accounting method that accumulates costs based on individual jobs, useful in manufacturing or service situations where each job is different.

Process Costing

An accounting methodology used for allocating production costs to individual units of output in continuous production processes.

Paint Manufacturer

A company specialized in producing paint and related products through various processes including mixing, refining, and packaging.