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Chapter 21: Q 12. (page 566)

“Firms will increase production when planned investment is less than (actual) total investment.” Is this statement true, false, or uncertain? Explain your answer.

Short Answer

Expert verified

This statement is False

Step by step solution

01

Step 1. Introduction

If Actual Investment is more than planned investment, then inventories level rise - as inventories are a part of investment expenditure.

This implies that inventory level is above the desired ideal inventory level.

02

Explanation

Actual Investment more than planned investment & subsequent more inventory leads to firm's desire to reduce investment, inventory. So, they reduce (Not Increase) the level of production to get rid of the excess inventory & more investment.

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Most popular questions from this chapter

Suppose that Dell Corporation has 20,000 computers in its warehouses on December 31, 2019, ready to be shipped to merchants (each computer is valued at

\(500). By December 31, 2020, Dell Corporation has 25,000 computers ready to be shipped, each valued at \)450.

a. Calculate Dell’s inventory on December 31, 2019.

b. Calculate Dell’s inventory investment in 2020.

c. What happens to inventory spending during the early stages of an economic recession?

During and in the aftermath of the financial crisis of 2007–2009, planned investment fell substantially despite significant decreases in the real interest rate.

What factors related to the planned investment function could explain this?

“When the stock market rises, investment spending is increasing.” Is this statement true, false, or uncertain? Explain your answer.

If the consumption function is C = 100 + 0.75YD, I = 200, government spending is 200, and net exports are zero, what will be the equilibrium level of output?

What will happen to aggregate output if government spending rises by 100?

Assuming both taxes and government spending increase by the same amount, derive an expression for the effect on equilibrium output.
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