When output is higher than the intersection of the Keynesian AE and the 45 degree line,which of the following can we can expect to happen?
A)savings to be negative and consumption to fall
B)inventories to rise and output to fall
C)consumers to expect higher incomes and consumption to rise
D)inventories to fall and output to rise

Question

Quizplus · Accepted Answer

When output is higher than the intersection of the Keynesian AE and the 45 degree line, it means that output is higher than the level of planned expenditure. This suggests that firms are producing more than what is being demanded by consumers, hence, inventories will start to rise. As a result, output will eventually fall as firms reduce production to clear their excess inventories.

When Output Is Higher Than the Intersection of the Keynesian