In the short run with predetermined prices, when output is greater than planned aggregate expenditure:
A) potential output is greater than short-run equilibrium output.
B) potential output is less than short-run equilibrium output.
C) planned investment is less than actual investment.
D) planned investment is greater than actual investment.

Question

Quizplus · Accepted Answer

When output is greater than planned aggregate expenditure, it means that firms are producing more than what is being purchased, leading to an unplanned increase in inventories. This implies that actual investment (which includes changes in inventories) is greater than planned investment.

In the Short Run with Predetermined Prices, When Output Is