In a simplified economy with no government or foreign trade, if firms produce significantly more output than consumers and other firms plan to purchase, leading to a large, unplanned increase in inventories, the national accounts identity (Output ≡ Consumption + Planned Investment + Unplanned Inventory Investment) no longer holds true.
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Analysis of Economic Output and Spending
In a simplified economy with no government or foreign trade, suppose total output is $1000 billion. If planned consumption spending is $700 billion and planned investment spending is $200 billion, which of the following statements is necessarily true based on the national accounts identity?
The Definitional Nature of the National Accounts Identity
Related
Analysis of Economic Output and Spending
In a simplified economy with no government or foreign trade, suppose total output is $1000 billion. If planned consumption spending is $700 billion and planned investment spending is $200 billion, which of the following statements is necessarily true based on the national accounts identity?
The Definitional Nature of the National Accounts Identity