The figure given below shows the aggregate expenditure curve of an open economy. Figure 10.1 In the figure:
C₁: Consumption
I₁: Investment
G₁: Government spending
X₁: Net Exports
Consider the economy described in Figure 10.1.Which of the following is true if the real GDP is equal to 0H?

Question

The figure given below shows the aggregate expenditure curve of an open economy. Figure 10.1

In the figure:
C₁: Consumption
I₁: Investment
G₁: Government spending
X₁: Net Exports
Consider the economy described in Figure 10.1.Which of the following is true if the real GDP is equal to 0H?

Quizplus · Accepted Answer

At real GDP level 0H, the aggregate expenditure exceeds the total income (which is at A). This implies that businesses are producing more than what is being demanded, and therefore, inventories will accumulate, which is an example of unwanted inventories. Therefore, option D is the correct choice. Option A is incorrect as there is no mention of the total income being less than aggregate expenditure. Option B is incorrect since it cannot be determined from the given information whether all economic resources are being used efficiently. Option C is incorrect as there is no information provided on households' saving or dissaving behavior. Option E is also incorrect since there is no mention of unplanned investment declining.

The Figure Given Below Shows the Aggregate Expenditure Curve of an Open