Assume an economy is in equilibrium at an output level of $600 billion. If government purchases decrease by $75 billion, then at the output level of $600 billion, there is

Question

Quizplus · Accepted Answer

When government purchases decrease by $75 billion, total spending in the economy decreases. At the original output level of $600 billion, this means that goods produced will not be sold as expected, leading to an unplanned increase in inventories.

Assume an Economy Is in Equilibrium at an Output Level