Figure 9-4

-Refer to Figure 9-4.Which of the following best describes what is happening to inventories at Y₀?
A)Inventories are unexpectedly rising, and firms will reduce prices.
B)Inventories are unexpectedly falling, and firms will reduce output.
C)Inventories are unexpectedly rising, and firms will reduce output.
D)Inventories are unexpectedly rising, and firms will increase output.

Question

Figure 9-4
 
-Refer to Figure 9-4.Which of the following best describes what is happening to inventories at Y₀?
A)Inventories are unexpectedly rising, and firms will reduce prices. 
B)Inventories are unexpectedly falling, and firms will reduce output. 
C)Inventories are unexpectedly rising, and firms will reduce output. 
D)Inventories are unexpectedly rising, and firms will increase output.

Quizplus · Accepted Answer

In Figure 9-4, the intersection point of the aggregate demand and short-run aggregate supply curves is to the left of the long-run aggregate supply curve, indicating a situation of unexpected increases in inventories. Firms will therefore reduce output to decrease their inventories. Option A is incorrect because when inventories unexpectedly increase, firms do not reduce prices. Option B is incorrect because if inventories were unexpectedly falling, firms would increase output rather than reduce it. Option D is incorrect because if inventories were unexpectedly rising, firms would not increase output.

Figure 9-4 -Refer to Figure 9-4.Which of the Following Best Describes What