Suppose the equilibrium level of expenditure is $1,200. If real GDP is $1,400, then planned expenditures
A) are equal to real GDP, and there will be no change in real GDP.
B) are less than real GDP, and real GDP will increase.
C) exceed real GDP, and real GDP will increase.
D) are less than real GDP, and real GDP will decrease.

Question

Quizplus · Accepted Answer

When planned expenditures are less than real GDP, it indicates that not all goods and services produced are being purchased, leading to an accumulation of unsold inventory. As a result, firms will reduce production, causing real GDP to decrease.

Suppose the Equilibrium Level of Expenditure Is $1,200