Consider the simplest macro model with a constant price level and demand- determined output. If national income is less than its equilibrium level, it is likely that firms' inventories are _ , and so national income tends to .
A)constant; fall
B)being depleted; rise
C)accumulating; fall
D)accumulating; rise
E)being depleted; fall

Question

Quizplus · Accepted Answer

If national income is less than its equilibrium level, firms' inventories are being depleted because demand exceeds supply, leading to an increase in production and thus a rise in national income.

Consider the Simplest Macro Model with a Constant Price Level