Step 1: Defining National Income Equilibrium.
Equilibrium occurs when planned investment equals actual investment. If planned investment is greater than actual investment, firms will produce more than they sell, leading to an unplanned buildup of inventory.
Step 2: Evaluating the Options.
- (A) Unplanned inventory accumulation: This option is accurate. When \( I_d > I_r \), production exceeds sales, resulting in an unintended increase in inventory levels.
- (B) Unplanned inventory shortfall: This option is inaccurate. An inventory shortfall arises when actual investment surpasses planned investment.
- (C) No change in inventory stock: This option is inaccurate. A discrepancy between planned and actual investment will invariably alter inventory levels.
- (D) Increasing tax rate: This option is irrelevant. The equilibrium condition pertains to investment, not tax rates.
Step 3: Final Determination.
Option (A) is the correct choice, as unplanned inventory accumulation is the consequence of \( I_d > I_r \).
In the context of the Keynesian concept of a multiplier, a \(\$\)1 increase in government spending financed by a \(\$\)1 increase in taxes will cause equilibrium income to:
Which of the following statements are correct about the IS curve?
(A) It shows the combination of the interest rate and the level of income such that the money market is in equilibrium.
(B) It is negatively sloped.
(C) The smaller the multiplier and the more sensitive investment spending is to changes in the interest rate, the steeper the IS curve.
(D) An increase in government purchases shifts the IS curve to the right.
Choose the correct answer from the options given below: