If the economy is operating above (to the right of) the IS curve, then real GDP is _______ than planned expenditure,
A) greater; inventories are decreasing faster than expected, and businesses will reduce production.
B) less; inventories are decreasing faster than expected, and businesses will increase production.
C) greater; inventories are increasing faster than expected, and businesses will reduce production.
D) less; inventories are increasing faster than expected, and businesses will increase production.

Question

Quizplus · Accepted Answer

When the economy is operating above the IS curve, real GDP is greater than planned expenditure, leading to inventories increasing faster than expected. Businesses, noticing this accumulation, will likely reduce production to adjust.

If the Economy Is Operating Above (To the Right Of)