If the economy is on the aggregate supply curve but to the right of the aggregate demand curve,which of the following will be the first market force to lead the economy toward an equilibrium?
A) At the current output level,prices will be too low and firms will increase their prices.
B) At the current price level,output will be too low,inventories will diminish,and firms will increase their production.
C) At the current output level,prices will be too low and firms will lower their prices.
D) At the current price level,output will be too high and so prices will drop so that output will drop.
E) At the current price level,output will be too high,inventories will pile up and firms will cut back on their production.

Question

Quizplus · Accepted Answer

When the economy is to the right of the aggregate demand curve, it indicates that output is higher than what is demanded at the current price level. This leads to excess supply, causing inventories to pile up. Firms will respond by cutting back on production to reduce the excess inventory, moving the economy toward equilibrium.

If the Economy Is on the Aggregate Supply Curve but to the Right