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What happens if aggregate expenditure is greater than total income?

If aggregate planned expenditure exceeds real GDP, inventories decrease below their target levels. Firms increase their production to build up their inventories and GDP increases. Firms decrease their production to reduce their inventories and GDP decreases.

What is it called when income is equal to expenditure?

From Wikipedia, the free encyclopedia. Aggregate income is the total of all incomes in an economy without adjustments for inflation, taxation, or types of double counting. Aggregate income is a form of GDP that is equal to Consumption expenditure plus net profits.

What is the value of multiplier if MPC is 1 3?

Therefore, the value of the multiplier is infinity.

What is the positive multiplier effect?

An effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent. For example, if a corporation builds a factory, it will employ construction workers and their suppliers as well as those who work in the factory.

Why is the tax multiplier smaller in absolute terms than the government purchases multiplier?

Answer : The tax multiplier is smaller in absolute value than the government expenditure multiplier because the government expenditure affects the total expenditure and taxes through the multiplier. The tax multiplier also influences the disposable income which affects the overall consumption level.

Does government spending ever reduce private spending?

less than the increase in government spending. Does government spending ever reduce private‚Äč spending? Yes, due to crowding out.

How do you find the maximum change in real output?

To calculate the maximum change in GDP, use the spending multiplier. The formula for the spending multiplier is 1/MPS or 1/(1-MPC). In the example above, the multiplier would be 5 (1/. 2).