In the Keynesian AE model,if the autonomous components of consumption,investment,government spending,and net export spending total $200 billion and the MPC is 0.8,under what circumstances will unplanned changes in inventory be zero?
A)when output is $160 billion
B)when output is $250 billion
C)when output is $1000 billion
D)when output is $1600 billion

Question

Quizplus · Accepted Answer

Unplanned changes in inventory are equal to the difference between actual output and planned output, where planned output is determined by autonomous spending (C+I+G+NX). In order for unplanned changes in inventory to be zero, actual output must be equal to planned output. With autonomous spending equal to $200 billion and an MPC of 0.8, the multiplier is 1/(1-0.8) = 5. Therefore, planned output is 5 times autonomous spending, or $1000 billion. Thus, when output is $1000 billion, unplanned changes in inventory will be zero. Other choices do not satisfy this condition.

In the Keynesian AE Model,if the Autonomous Components of Consumption,investment,government