Principles of Economics W1105x-1 Fall 2009 Sunil Gulati Solution Set #3 1.a.Ace Computers’ sales contribute to consumption (C, sales to households), planned investment (I, sales to private firms), government purchases (G), and net exports (NX). In addition, unplanned investment (I) occurs when there are changes in inventories. Scenario I Scenario II Scenario III C$200 million $250 million $300 million I$ 50 million $ 50 million $ 50 million G$100 million $100 million $100 million NX$100 million$100 million$100 millionTotal expenditures $450 million $500 million $550 million Change in inventories +$50 million$0 million–$50 millionContribution to GDP $500 million $500 million $500 million Total expenditures on Ace’s computers are $450 million, $500 million and $550 million in Scenarios I, II and III, respectively. The contribution of Ace Computers to GDP in 2006 is equal to $500 million in each scenario. b.In Scenario I, Ace will likely decrease its rate of output in 2007 because sales were only $450 million. The firm may want to sell the $50 million of computers produced, but not sold, in 2006 before producing more computers in 2007. In Scenario II,
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