In the Keynesian model, if aggregate expenditures exceed aggregate output and inventories of firms fall, then the aggregate output and the business sector could be expected to:
A) increase output.
B) decrease output.
C) decrease investment.
D) hire fewer workers.

Question

Quizplus · Accepted Answer

In the Keynesian model, if aggregate expenditures exceed aggregate output, inventories of firms will fall, which signals that there is more demand for goods than there is supply. As a result, firms will increase production to meet the increased demand, which will lead to an increase in aggregate output. This increase in output will require hiring more workers and may also increase investment in order to expand production capacity.

In the Keynesian Model, If Aggregate Expenditures Exceed Aggregate Output