Refer to Exhibit 10-5

Refer to Exhibit 10-5 above and answer all questions below:

a)Choose a level of Real GDP that is not at equilibrium$_________

b)If autonomous consumption (C₀) increases, it follows that TE (or AD) willshiftupward/downwardot be affected at all.

c)When Real GDPis $200 billion, inventories willFall/Rise/Remain Unchanged.

d)When Real GDPis $600 billion, firms will most likely (chose either I, II, or III)

I. Increase production to increase inventories to their optimum levels.

II. Will neither increase nor decrease production since the economy is in equilibrium

III. Will cut back production to reduce inventories to their optimum levels

e)Suppose full employment GDP is at $700 bill and the economy is currently at $400 bill. If the multiplier is 4, by how much should Autonomous Consumption (C₀) change to push the level of Real GDP to reach full employment?

$C₀= ____________

Real GDP 45* line 800 700 I(AD) #TE = C + 1 600 500 Total Expenditures (billions of dollars) 400 300 200 100 O 100 200 300 400 500 600 700 800 Real GDP (billions of dollars)