Prior to the 1970s, the model of choice was the aggregate expenditures model. According to Jthis model, if the economy was in equilibrium at an income greater than the full employment level, then the primary economic problem would be
A) excessive bank lending.
B) potential crises in financial markets.
C) inflation.
D) excess aggregate demand.

Question

Quizplus · Accepted Answer

According to the aggregate expenditures model, at an income greater than the full employment level, the economy would experience excess aggregate demand which would lead to inflation as prices rise due to increased demand for goods and services. Therefore, the primary economic problem in this scenario would be inflation.

Prior to the 1970s, the Model of Choice Was the Aggregate