In the aggregate expenditures model of a private closed economy, if aggregate expenditures are greater than output or income, then real GDP will increase towards its equilibrium level.

Question

Quizplus · Accepted Answer

This is true according to the basic macroeconomic concept of the Keynesian expenditure multiplier. If aggregate expenditures are greater than output or income, then firms will increase production to meet the excess demand, resulting in an increase in real GDP towards its equilibrium level.

In the Aggregate Expenditures Model of a Private Closed Economy