Figure 13-6 -Refer to Figure 13-6. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JI_P = Planned Investment, G = Government Purchases. Further, I_P and G are autonomous. JIf real GDP produced is $4,000, how will equilibrium be restored in the economy? A) Policymakers must conduct contractionary policies to move the economy toward its equilibrium real GDP. B) Firms will reduce their output in subsequent periods, moving the economy toward its equilibrium real GDP. C) The price level must rise to reduce aggregate expenditures and restore equilibrium. D) The price level must fall to increase aggregate expenditures and restore equilibrium.

Question

Quizplus · Accepted Answer

If real GDP produced is below the equilibrium level, then there will be unplanned inventory accumulation, and firms will reduce their output in subsequent periods to clear the inventory. This reduction in output by firms will ultimately move the economy toward its equilibrium real GDP. Therefore, choice B is the best answer.

Figure 13-6 -Refer to Figure 13-6. Let Y = Real GDP, AE