Refer to the information provided in Figure 23.10 below to answer the question(s) that follow. Figure 23.10
-Refer to Figure 23.10. Unplanned inventories increase and output decreases when aggregate output is
A) $0.
B) $500 million.
C) $1,000 million.
D) $1,000 million.

Question

Refer to the information provided in Figure 23.10 below to answer the question(s) that follow.  Figure 23.10
-Refer to Figure 23.10. Unplanned inventories increase and output decreases when aggregate output is
A) $0. 
B) $500 million. 
C) $1,000 million. 
D) > $1,000 million.

Quizplus · Accepted Answer

In Figure 23.10, the point where the 45-degree line intersects with the AD curve represents the equilibrium level of output. Any level of output beyond this point (to the right of the vertical line) represents output greater than the equilibrium level. At these levels of output, firms are producing more than what is being demanded, resulting in unplanned increases in inventories. Conversely, any level of output before the intersection point (to the left of the vertical line) represents output lower than the equilibrium level. At these levels of output, firms are producing less than what is being demanded, resulting in unplanned decreases in inventories. Therefore, the correct answer is D, as output beyond $1,000 million results in unplanned increases in inventories and decreased output.

Refer to the Information Provided in Figure 23