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,what will unplanned changes in inventory be when output is $990 billion?
A)-$10 billion
B)-$8 billion
C)$8 billion
D)$10 billion

Question

Quizplus · Accepted Answer

The correct answer is A.The unplanned change in inventory is equal to the difference between actual output and planned aggregate expenditure. Planned aggregate expenditure is equal to the autonomous components of consumption, investment, government spending, and net export spending plus the induced component of consumption. The induced component of consumption is equal to the MPC times disposable income. Disposable income is equal to output minus taxes. In this case, the autonomous components of consumption, investment, government spending, and net export spending total $200 billion, the MPC is 0.8, and output is $990 billion. So, planned aggregate expenditure is equal to $200 billion + 0.8 * ($990 billion - $200 billion) = $952 billion. Therefore, the unplanned change in inventory is equal to $990 billion - $952 billion = -$38 billion.

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