Gross domestic product GDP Nominal GDP Investment Exports Na

Gross domestic product (GDP) Nominal GDP Investment Exports National income (NI) Personal Income (PI) Disposable income (DI) Labor force Unemployment Okun\'s Law Discouraged worker Seasonal unemployment Frictional unemployment Cyclical unemployment Full employment Inflation Consumer price Index (CPI) Base period Cost-of-living adjustment GDP deflator Business cycle Laissez faire Say\'s Law Recession Growth recession Full-employment GDP Consumption Average propensity to consume Marginal propensity to consume Wealth effect Recessionary GDP gap Demand-pull inflation Business cycle Short Essays 1) The value of total expenditures must be equal the value of total income. Why? 2) If an inflationary GDP gap exists, what will happen to business inventories? How will producers respond? How might rapid inflation affect college enrollments? Why frictional unemployment is deemed desirable? If business cycles were really inevitable, what purpose would macro policy serve? What jobs are likely part of the underground economy? 3) 4) 6)

Solution

The value of expenditure is same as total income because the expenditure made by some individuals is income to other individuals. With inflationary GDP the inventories will decrease as the inflationary GDP implies increased demand. The producers will respond by increasing the production. The rise in inflation will reduce the college enrollments because this will give rise to higher level of employment as the real income will go down people will devote more time to work then studies.