Explain how GDP would return to equilibrium if it was above or below equilibrium GDP.
What will be an ideal response?
If GDP were above equilibrium GDP, the total level of GDP produced would be greater than the level of spending it could generate. This difference means that businesses could not sell all of their stock of goods and inventories would increase. This situation would encourage businesses to cut back on production and GDP would decline back to equilibrium GDP.
If GDP were below equilibrium GDP, the total level of GDP is less than the amount of spending generated. This difference means that buyers are taking goods off the shelves faster than businesses could produce them. This situation, in turn, would encourage businesses to increase production, raising GDP back to equilibrium GDP.
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In addition to advising the president, one duty of the Council of Economic Advisers is to
a. prepare the federal budget. b. write government regulations. c. advise Congress on economic matters. d. write the annual Economic Report of the President.
Which of the following statements about demand and price elasticity of demand is TRUE?
A) As the demand curve has a positive slope, the price elasticity of demand is positive. B) As the demand curve has a negative slope, the price elasticity of demand is negative. C) As the demand curve has a positive slope, the price elasticity of demand is negative. D) As the demand curve has a negative slope, the price elasticity of demand is positive.