In the aggregate expenditures model, if aggregate expenditures are greater than real GDP,
A) there will be unplanned decreases in inventories.
B) employment decreases.
C) aggregate output decreases.
D) actual real output is greater than equilibrium real output.

Question

Quizplus · Accepted Answer

If aggregate expenditures are greater than real GDP, it means that firms are selling more than they are producing. This leads to unplanned decreases in inventories, as firms run out of stock to sell. To replenish their inventories, firms will increase production, thereby increasing real GDP to reach the equilibrium level.

In the Aggregate Expenditures Model, If Aggregate Expenditures Are Greater