If aggregate expenditure is greater than GDP, how will the economy reach macroeconomic equilibrium?
A)Inventories will decline and GDP and employment will decline.
B)Inventories will rise and GDP and employment will decline.
C)Inventories will decline and GDP and employment will rise.
D)Inventories will rise and GDP and employment will rise.
E)Inventories will rise, GDP will fall, and employment will rise.

Question

Quizplus · Accepted Answer

When aggregate expenditure is greater than GDP, it indicates that the demand for goods and services is higher than what the economy is currently producing. This leads to a decrease in inventories as firms sell more than they produce. To replenish their inventories, firms increase production, which leads to higher GDP and employment.

If Aggregate Expenditure Is Greater Than GDP, How Will the Economy