When the spending of consumers, businesses, government, and foreigners (net exports) is less than the current level of output, Keynesian analysis indicates that
A) the economy's output will fall short of its potential.
B) prices will rise.
C) equilibrium real GDP will increase.
D) inventories will decline.

Question

Quizplus · Accepted Answer

According to Keynesian analysis, when spending is less than the current level of output, it means there is a deficiency in aggregate demand, leading to a shortfall in output. As a result, the economy's output will fall short of its potential.

When the Spending of Consumers, Businesses, Government, and Foreigners (Net