Solution-Assumptions of the simple keynesian model

Assumptions of the simple keynesian model

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Reference no: EM131584752

The following hypothetical situation and the assumptions of the Simple Keynesian model are to be used in answering this question.

The economic system is currently producing goods and services at an annual level of $900 billion. Household consumption is running at $500 billion; business firms spend their planned amount of $200 billion on new plant and equipment; and government is also purchasing goods and services at the $200 billion level. Net exports equal zero. The natural level of output is estimated to be $1100 billion.

Here is the question. Which of the following statements most accurately characterizes the condition of this economy?

a.It is in a state of equilibrium at the natural level of output and income.

b.It is in a state of disequilibrium where total output exceeds planned expenditure.

c.It is in a state of disequilibrium where planned expenditure exceeds total output.

d.It is in a state of equilibrium with accelerating inflation.

e.It is in a state of equilibrium with a sluggish economy.

Reference no: EM131584752

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Assumptions of the simple keynesian model

Reference no: EM131584752

Reference no: EM131584752

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