17 EQUILIBRIUM OUTPUT

17 EQUILIBRIUM OUTPUT - SECTION 17: EQUILIBRIUM LEVEL OF...

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SECTION 17: EQUILIBRIUM LEVEL OF OUTPUT EQUILIBRIUM LEVEL OF OUTPUT The level of output where planned aggregate output equals actual aggregate output. At equilibrium, consumers and producers have no tendency to change their behavior. At equilibrium, producers have no incentive to increase (or decrease) output. EQUILIBRIUM: AGGREGATE PLANNED EXPENDITURES = TOTAL ACTUAL OUTPUT Total Production = Production for immediate sale + Production to increase inventories Equilibrium is achieved when people want to buy everything that has been produced for immediate sale. In this case, the firm’s level of inventories will be at exactly the desired level. Equilibrium is achieved if the amount that people desire to spend matches the amount that producers produced for immediate sale.
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THREE POSSIBLE SCENARIOS CASE 1. OUTPUT FOR SALE > DESIRED PURCHASES If actual output for immediate sale exceeds desired spending, inventories will increase above the desired level Signal to producers: REDUCE OUTPUT CONCLUSION:
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17 EQUILIBRIUM OUTPUT - SECTION 17: EQUILIBRIUM LEVEL OF...

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