If PAE is greater than Y, we expect:
A) inventories to increase.
B) inventories to decrease.
C) there will be no change in inventories.
D) the government will spend more than it has collected in taxes.

Question

Quizplus · Accepted Answer

If Planned Aggregate Expenditure (PAE) is greater than output (Y), it means that the economy is demanding more goods and services than are being produced. To meet this higher demand, firms will reduce their inventories, leading to a decrease in inventories.

If PAE Is Greater Than Y, We Expect