Question

The Republic of Yuck is a simple economy with no government, no taxes, and no imports and exports. Yuckers (citizens of Yuck) are creatures of habit. They have a rule that everyone saves exactly 22 percent of income. Assume that planned investment is fixed and remains at 67 billion Yuck dollars.Expert economists of the Republic of Yuck have estimated the following:Real GDP (Y) 192 billion Yuck dollarsPlanned Investment Spending (U): 67 billionYuck dollars You are asked by the business editor of the Weird Herald, the local newspaper, to predict the economic events of the next few months.Based on the information given above you predict that the inventories will _____ and output will _____ ,a. stay unchangedb increasec. decrease

Answer 1

The inventories will decrease and output will increase

Step-by-step explanation:

Note: The organized question is as attached

Real GDP is 192 billion

They consumes (100 - 22) = 78% of income.

Therefore, the consumption is 78% of 192 billion = 149.76 billion

The Investment is fixed at 67 billion . This implies that aggregate expenditure (AE = C + I) = 149.76 billion + 67 billion = 216.76 billion

Since Aggregate expenditure(AE) is greater than Real GDP (Y), It is likely that the inventories will decrease and the firms will produce more so that output will increase.