If firms find that consumers are purchasing less than expected, which of the following would you expect?
A)Aggregate expenditure will likely be greater than GDP.
B)Aggregate expenditure will likely be less than GDP.
C)The economy will adjust to macroeconomic equilibrium as inventories rise and production and employment rise.
D)The economy will adjust to macroeconomic equilibrium as inventories fall and production and employment rise.
E)The unemployment rate will fall.

Question

Quizplus · Accepted Answer

If consumers are purchasing less than expected, it indicates a decrease in aggregate demand, which would lead to a decrease in aggregate expenditure. This would cause GDP to be less than aggregate expenditure, since GDP includes all final goods and services produced within a country, while aggregate expenditure includes all spending on those goods and services (including imports). The economy would then adjust to macroeconomic equilibrium as inventories rise and production and employment fall to match the lower level of demand. Since production and employment are falling, the unemployment rate would likely rise, not fall.

If Firms Find That Consumers Are Purchasing Less Than Expected