When the excess capacity of business expands unintentionally, aggregate
A) demand will increase.
B) demand will decrease.
C) supply will increase.
D) supply will decrease.

Question

Quizplus · Accepted Answer

When there is excess capacity, it means that businesses are producing more than what is being demanded in the market. As a result, the excess supply puts downward pressure on prices, leading to a decrease in demand. This can also lead to lower profits for the businesses, which can further discourage investment and reduce supply. Thus, B is the correct choice as it reflects the negative impact of excess capacity on demand.

When the Excess Capacity of Business Expands Unintentionally, Aggregate