According to the Keynesian Cross model, ﬁrms will have to reduce production when:
A) there is excess demand for goods and services.
B) inventory levels begin to fall.
C) aggregate demand equals the level of national output.
D) the level of national output exceeds aggregate demand.

Question

Quizplus · Accepted Answer

In the Keynesian Cross model, when the level of national output exceeds aggregate demand, it indicates that the goods produced are not being fully purchased, leading to an accumulation of unsold goods or inventories. Firms will then reduce production to prevent further accumulation of unsold stock.

According to the Keynesian Cross Model, ﬁRms Will Have to Reduce