According to the aggregate expenditures model, what happens initially when there is a sudden, unexpected drop in consumer spending?
A) Aggregate expenditures immediately fall by the amount of the drop in consumer spending.
B) The equilibrium level of output immediately rises.
C) The equilibrium level of output immediately falls.
D) Aggregate expenditures hold steady at first due to a matching increase in unplanned inventory investment.
Correct Answer:
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