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Real GDP Consumption Planned Investment Government Purchases Net Exports $2,000 $1,600 $250 $250 $100 2,500 2,000 250 250 100 3,000 2,400 250 250 100 3,500

Real GDP Consumption Planned Investment Government Purchases Net Exports
$2,000 $1,600 $250 $250 $100
2,500 2,000 250 250 100
3,000 2,400 250 250 100
3,500 2,800 250 250 100

Table 2

Real GDP Aggregate Expenditure

Unplanned Change

in Inventories

Real GDP Will...

(increase, decrease, or be in equilibrium)

$2,200
2,500
3,000
3,500

Examine the Table 1 information provided and perform the following activities for Table 2:

  1. For each level of Real GDP, calculate aggregate expenditure, unplanned change in inventories, and indicate what will happen to GDP (increase, decrease or be in equilibrium). Present your answer in the Table 2 format above. Explain how you derived the Aggregate Expenditure and Unplanned Change in Inventories values.
  2. Explain how the values in the Unplanned Change in Inventories column dictate what will happen to the Real GDP.

  1. Suppose the Canadian economy is currently at point K as shown in the diagram above. Give examples of two realistic events that could cause it to move to point N.

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