Question

Are the following statements true or false?

a. Autonomous expenditure is expenditure that depends on the current level of income.

b. Firms always produce the most they can at a given price.

c. Firms only produce what they can sell at a given price.

d. If prices do not adjust, the economy will produce at a level of output that is different from potential output.

Answer 1

Correct answers of above question.

a) False.

Autonomous expenditure is expenditure that independent  on the current level of income.

b). False.

At a given price firms only produce they can sell.

c). True.

This is true statement that firms can only produce they can sell at a given price.

d). True.

If prices do not adjust, the economy will produce at a level of output that is different from potential output

Since if actual output is greater than potential output, price level increases in an economy and if actual output is less than potential output price level falls.