U.S. household wealth that induced most U.S residents to reduce their planned real spending at
U.S. household wealth that induced most U.S. | |||||||||||
residents to reduce their planned real spending at | |||||||||||
any given price level. Explain, from a short-run | |||||||||||
Keynesian perspective, the predicted effects of | |||||||||||
this event on the equilibrium U.S. price level and | |||||||||||
equilibrium U.S. real GDP. Be sure to discuss the | |||||||||||
spending gap that the Keynesian model indicates | |||||||||||
would result in the short run. (See page 240.) | |||||||||||
in equilibrim planned spending = actual spending so that unplanned part = 0 | |||||||||||
a reduction in planned spending by consumers will cause a change in equilibrium as inventories start piling up. | |||||||||||
this happens because coinsumers do not buy as mush as produced by firms. | |||||||||||
this will cause firms to cut back on production so that GDP levels will fall. | |||||||||||
this can also be seen as a spending gap = difference between aggregate spending and output at full employmnet or long run level of GDp |