Discuss the relationship between the business cycle and changes in autonomous expenditures
What will be an ideal response?
An increase in autonomous expenditure increases aggregate planned expenditure. At the moment the economy turns the corner into expansion, aggregate planned expenditure exceeds real GDP. Firms' inventories become less than their target levels, so firms increase production in order to build up their inventories. The reverse happens when a recession begins. A decrease in autonomous expenditure decreases aggregate planned expenditure. When the economy turns the corner into recession, aggregate planned expenditure is less than real GDP. As a result firms' inventories exceed their target levels, and so firms decrease production in order to decrease their inventories.
You might also like to view...
Refer to Figure 11.2. Suppose that Ca = 40, MPC = 0.8, I = 10. The value of autonomous consumption is
A) 10. B) 40. C) 50. D) 80.
The basic nature of the real property tenure that was transferred here from England included all of the following characteristics of ownership except
(a) Ownership by purchase was perpetual as long as taxes due were met. (b) Land could descend to heirs either by will or inheritance. (c) Ownership included surface resources but not subsurface resources or mineral rights, like iron ore, whose ownership was retained by the state. (d) The right to exploit owned resources (right of waste) was complete.