When the AE line lies above the 45° line,
A) there are unplanned decreases in inventories.
B) aggregate planned expenditure is less than real GDP.
C) there are unplanned increases in inventories.
D) real GDP exceeds aggregate planned expenditure.
E) the price level is rising.

Question

Quizplus · Accepted Answer

When the AE (Aggregate Expenditure) line is above the 45° line, it indicates that aggregate planned expenditure is greater than real GDP, leading to unplanned decreases in inventories as businesses sell more than they produce.

When the AE Line Lies Above the 45° Line