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Exhibit: Keynesian Cross
-(Exhibit: Keynesian Cross) In this graph, if firms are producing at level Y₁, then inventories will ______, inducing firms to ______ production.

Question

Use the following to answer questions :
Exhibit: Keynesian Cross

-(Exhibit: Keynesian Cross) In this graph, if firms are producing at level Y₁, then inventories will ______, inducing firms to ______ production.

Quizplus · Accepted Answer

If firms are producing at level Y1, which is below the equilibrium level of output, inventories will fall because the actual production is less than the aggregate demand. This will induce firms to increase production to meet the higher demand.

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