If national income is above its equilibrium level, then:
A) there are unplanned reductions in inventories and national income will fall.
B) there are unplanned reductions in inventories and national income will rise.
C) there are unplanned increases in inventories and national income will rise.
D) there are unplanned increases in inventories and national income will fall.

Question

Quizplus · Accepted Answer

When national income is above its equilibrium level, it indicates that the total output (or production) exceeds the total demand. This leads to unplanned increases in inventories because firms are producing more goods than are being bought. As a result, firms will likely cut back on production, leading to a decrease in national income towards its equilibrium level.

If National Income Is Above Its Equilibrium Level, Then