In the above diagram, what happens if the real GDP is $3 trillion? $5 trillion? $7 trillion? What is the equilibrium level of real GDP? Why?
What will be an ideal response?
At real GDP of $3 trillion, planned real investment is greater than real saving, which means households are buying more than producers had anticipated. There is an unplanned inventory decrease of $500 billion, and businesses increase production and hiring. At $5 trillion, planned real investment and planned real saving are equal, so this is the equilibrium. At $7 trillion, planned real saving is greater than planned real investment so there is an unplanned increase in inventories of $500 billion. Businesses reduce production and lay off workers, forcing real GDP back towards $6 trillion.
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The American manufacturing system began to emerge in the years prior to the Civil War. Which of the following was not an important aspect of the system?
(a) Extensive or increased use of craftsmen (b) Mass production of goods in factories (c) The production of standardized goods (d) Extensive use of machinery and equipment
Internal economies of scale means that
A) firms are experiencing lower average production costs due to a geographical concentration of firms in their industry that make it cheaper and easier to hire highly specialized workers and inputs. B) firms will have lower profits after international trade begins, because costs will be higher than when they just focused on the domestic market. C) consumers will have less choices once trade begins, because firms will be squeezed out of the market. D) expanding the size of the market the firm serves reduces overall per unit costs, since the firm can spread costs over more output.