In the aggregate demand-output model, if aggregate demand is less than GDP, then:
A) inventory is unchanged.
B) inventory is depleted.
C) employment increases.
D) GDP decreases.

Question

Quizplus · Accepted Answer

If aggregate demand is less than GDP, it means that the total demand for goods and services in the economy is less than the actual level of output. This results in unsold goods and services, which eventually leads to a decrease in GDP as firms produce less to adjust to the lower demand. This decrease in production leads to lower employment levels and ultimately, economic contraction. Therefore, option D is the correct answer.

In the Aggregate Demand-Output Model, If Aggregate Demand Is Less