Consider the simplest macro model with demand- determined output. If desired aggregate expenditure is greater than actual national income, then
A)inventories will likely begin to fall, causing firms to increase production.
B)actual national income must be less than the equilibrium level.
C)both A and B are correct.
D)inventories will likely begin to rise, causing firms to reduce production.
E)actual national income must be greater than the equilibrium level.

Question

Quizplus · Accepted Answer

When desired aggregate expenditure exceeds actual national income, inventories fall, prompting firms to increase production, indicating that actual national income is below equilibrium.

Consider the Simplest Macro Model with Demand- Determined Output