What happens when planned investment is greater than actual investment?
In general, planned investment is the amount of investment firms plan to undertake during a year. … If actual investment is greater than planned investment, then inventories go up, since inventories are part of capital. This increase in inventories may lead firms to reduce output.
When actual investment is less than planned investment there must be?
When planned investment is less than actual investment, there must be: unplanned inventory investment. If planned investment spending increases, the planned aggregate spending line: shifts up.
Can total income in the economy can sometimes be greater than total spending?
GDP measures the total income of everyone and the total spending by everyone in the economy. Total income in the economy can sometimes be greater than total spending. … The difference between GNP and GDP is depreciation.
When aggregate expenditure is greater than aggregate output there will be an unplanned build up of inventories?
1) When aggregate expenditure is greater than aggregate output, there will be an unplanned build up of inventories. 2) When there is an unplanned draw down of inventories, firms will increase production. 3) Actual investment equals planned investment plus unplanned changes in inventories.
What is the difference between planned investment and actual investment?
Actual investment means investment which firms actually do in a period of time. Planned investment is investment which is intended by firms. … It is addition to capital and stock which firms plan to do in a period of time. It includes item such as unplanned changes in inventories.
How do you calculate actual investment?
In fact, it boils down to a simple formula: Actual investment is equal to planned investment plus unplanned changes in inventory.
What is the most important determinant of consumer spending?
The most important determinant of consumer spending is disposable income. If consumers have more income, they will spend more, and aggregate demand will increase. When the economy slows down and consumers have less disposable income, they will spend less, and aggregate demand decreases.
What is the increase of prices called?
Inflation is the rate of increase in prices over a given period of time. … Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.