In the aggregate expenditure (AE) model, when real GDP exceeds aggregate planned expenditure, actual inventories ________ planned inventories and real GDP ________.
A) exceed; increases
B) exceed; does not change
C) exceed; decreases
D) are less than; increases
E) are less than; decreases

Question

Quizplus · Accepted Answer

When real GDP exceeds aggregate planned expenditure, firms end up with more goods than they planned to have, meaning actual inventories exceed planned inventories. As a result, firms will likely cut back on production, leading to a decrease in real GDP.

In the Aggregate Expenditure (AE) Model, When Real GDP Exceeds