In Figure 1 above if the economy were at Y3 then we would expect there to be:
A) a reduction in inventories.
B) an increase in inventories.
C) no change in inventories.
D) an increase in consumption spending.

Question

In Figure 1 above if the economy were at Y3 then we would expect there to be:
A) a reduction in inventories. 
B) an increase in inventories. 
C) no change in inventories. 
D) an increase in consumption spending.

Quizplus · Accepted Answer

At point Y3, actual output (AD) is greater than potential output (SRAS), indicating that there is excess demand in the economy. In order to meet this excess demand, firms will need to increase their production beyond their current level, which will lead to an accumulation of inventories. Therefore, we would expect there to be an increase in inventories at Y3.

In Figure 1 Above If the Economy Were at Y3