A decrease in aggregate expenditure has what result on equilibrium GDP?
A)Equilibrium GDP rises.
B)Equilibrium GDP is not affected by a decrease in aggregate expenditure.
C)Equilibrium GDP falls.
D)Equilibrium GDP may rise or fall depending on the size of the decrease in aggregate expenditure relative to the initial level of GDP.

Question

Quizplus · Accepted Answer

A decrease in aggregate expenditure means that there will be a decrease in total spending in the economy, which leads to reduced demand for goods and services. This reduction in demand leads to a decrease in equilibrium GDP because producers will produce fewer goods and services, and thereby decrease the level of output in the economy.

A Decrease in Aggregate Expenditure Has What Result on Equilibrium