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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

What role do inventories play in the equilibrating process in the simple Keynesian model (as described in the TE–TP framework)?

To determine

The role of inventories in the simple TP-TE framework of Keynesian economic model.

Explanation

The expenditures are of three types in the closed economy, namely the consumption expenditure, investment expenditure, and the government purchases. These three expenditures in the economy are the expenditures that constitute the total expenditure of the economy. Thus, the total expenditure is the vertical summation of these three different expenditures of the economy.

The production can take place in three different sectors such as the households, firms, and the government sectors. Thus, similar to the total expenditure, the total product is the vertical summation of the individual productions of the three different sectors of production in the economy.

The inventories are the unsold stock of output in the economy. Thus, it is the unsold goods and services produced by the firm in the economy...

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