Refer to the information provided in Figure 8.10 below to answer the questions that follow. Figure 8.10
-Refer to Figure 8.10. Unplanned inventories increase and output decreases when aggregate output is
A) $0.
B) $500 million.
C) $1,000 million.
D) $1,000 million.

Question

Refer to the information provided in Figure 8.10 below to answer the questions that follow.  Figure 8.10
-Refer to Figure 8.10. Unplanned inventories increase and output decreases when aggregate output is
A) $0. 
B) $500 million. 
C) $1,000 million. 
D) > $1,000 million.

Quizplus · Accepted Answer

As we move to the right of the vertical AS curve, we see that the aggregate output increases beyond the natural output level ($1,000 million). This causes unplanned inventories to increase and output to decrease, indicating that the economy is now operating above its potential output level. Therefore, the correct answer is (D) > $1,000 million.

Refer to the Information Provided in Figure 8