The above figure shows the AE curve and 45° line for an economy
a. If real GDP equals $10 trillion, how do firms' inventories compare to their planned inventories?
b. If real GDP equals $20 trillion, how do firms' inventories compare to their planned inventories?
c. What is the equilibrium level of expenditure? Why is this amount the equilibrium?
a. If real GDP equals $10 trillion, aggregate expenditure exceeds GDP and so firms' inventories are less than planned.
b. If real GDP equals $20 trillion, aggregate expenditure is less than GDP and so firms' inventories are more than planned.
c. The equilibrium level of expenditure is $15 trillion because at this level of GDP, aggregate expenditure equals GDP. As a result, firms' inventories equal planned inventories so firms have no incentive to either increase or decrease production.
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Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?
a. Free entry to reduce short-run profits, or free exit to reduce short-run losses. b. Economic profits are positive, but cannot be negative. c. Marginal revenue is greater than marginal cost. d. Average revenue is less than average cost.
The dramatic increase in the standard of living since the Industrial Revolution
a. means that societies and individuals face no constraints. b. has not meant unlimited abundance for societies or persons. c. means that "opportunity cost" is a meaningless concept. d. has reduced the choices open to persons. e. has made economics less useful to persons.