Consider a simple macro model with a constant price level and demand-determined output.Suppose desired aggregate expenditures are less than the current level of national income.The vertical distance between the AE curve and the 45-degree line represents
A)desired accumulation of inventories.
B)desired decumulation of inventories.
C)the amount by which output exceeds desired expenditures.
D)the output gap.
E)the amount by which desired expenditures exceeds output.

Question

Quizplus · Accepted Answer

The vertical distance between the AE (Aggregate Expenditure) curve and the 45-degree line at any level of income represents the amount by which output (or actual national income) exceeds desired expenditures. When desired aggregate expenditures are less than the current level of national income, firms experience unintended inventory accumulation because they produce more than what is being demanded.

Consider a Simple Macro Model with a Constant Price Level