The economy is in equilibrium,TP = TE.Then,autonomous consumption rises.As a result,__________ rises,the __________ curve shifts __________,inventory levels unexpectedly __________,and business firms __________ the quantity of goods and services they produce.
A) consumption; TE; downward; fall; increase
B) consumption; TE; upward; fall; increase
C) consumption; TE; upward; rise; decrease
D) investment; TE; upward; fall; increase
E) investment; TP; leftward; fall; increase

Question

Quizplus · Accepted Answer

When autonomous consumption rises, it leads to an overall rise in consumption. As consumption is a component of the aggregate expenditure, the aggregate expenditure curve shifts upward. This causes a new equilibrium point to be established at a higher level of output where the aggregate expenditure intersects with the production level. As a result of this rise in output, inventory levels unexpectedly fall, and businesses increase the quantity of goods and services they produce to meet the higher demand. Therefore, the correct option is B: consumption; TE; upward; fall; increase.

The Economy Is in Equilibrium,TP = TE