Refer to the graph above for a private closed economy. At the $150-billion level of GDP:
A) Aggregate expenditures are less than real GDP, so GDP will rise
B) Aggregate expenditures are more than real GDP, so GDP will fall
C) Aggregate expenditures are more than real GDP, so GDP will rise
D) Aggregate expenditures will be equal to GDP, so there will be no change in GDP

Question

Refer to the graph above for a private closed economy. At the $150-billion level of GDP:
A) Aggregate expenditures are less than real GDP, so GDP will rise 
B) Aggregate expenditures are more than real GDP, so GDP will fall 
C) Aggregate expenditures are more than real GDP, so GDP will rise 
D) Aggregate expenditures will be equal to GDP, so there will be no change in GDP

Quizplus · Accepted Answer

At the $150-billion level of GDP, the aggregate expenditures line is above the 45-degree line, indicating that aggregate expenditures are greater than real GDP. This suggests that there is an unplanned increase in inventories and firms will respond by increasing production, resulting in an increase in GDP.

Refer to the Graph Above for a Private Closed Economy