If aggregate planned expenditure exceeds real GDP then
A)inventories increase, and the short- run aggregate supply curve shifts rightward.
B)inventories increase, and as real GDP increases, a movement up along the AE curve occurs.
C)inventories decrease, and as real GDP increases, a movement up along the AE curve occurs.
D)inventories decrease, and the AE curve shifts downward.
E)inventories increase, and the AE curve shifts upward.

Question

Quizplus · Accepted Answer

When aggregate planned expenditure exceeds real GDP, businesses sell more than they expected, leading to a decrease in inventories. This situation typically prompts an increase in production, resulting in an increase in real GDP. The adjustment process involves a movement up along the Aggregate Expenditure (AE) curve as the economy moves towards equilibrium, not a shift of the AE curve itself.

If Aggregate Planned Expenditure Exceeds Real GDP Then