What changes in the income-expenditure model if spending exceeds GDP?
A) consumption
B) prices
C) expenditures
D) inventories
E) income

Question

Quizplus · Accepted Answer

If spending exceeds GDP, then inventories will decrease as businesses sell more than they produce. This can lead to higher prices and potentially higher levels of income in the long run as producers increase output to meet demand. However, in the short run, it may lead to a decrease in GDP as production levels adjust to the lower inventory levels. The other options (consumption, expenditures, and income) are all components of GDP and would be affected by changes in spending, but they do not directly address the issue of spending exceeding GDP.

What Changes in the Income-Expenditure Model If Spending Exceeds GDP