In the aggregate expenditures model of a private closed economy, aggregate expenditures (C + I_g) is always equal to output GDP.

Question

Quizplus · Accepted Answer

In the aggregate expenditures model, equilibrium occurs when aggregate expenditures (C + I_g) equal output GDP, but they are not always equal. If aggregate expenditures are greater than GDP, inventories will fall, leading to an increase in production. If aggregate expenditures are less than GDP, inventories will rise, leading to a decrease in production.

In the Aggregate Expenditures Model of a Private Closed Economy