Starting from a state of equilibrium, trace the effects of each of the following. What happens to inventories? How do firms react? What happens to incomes? To consumption expenditure? To GDP?
a. Business managers, anticipating future profit opportunities in consumer electronics, increase orders for production equipment in order to prepare for the expected increase in demand.
b. The federal government reduces income tax rates.
c. Good harvests in Africa reduce the demand for exports of US farm products.