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Exhibit: Keynesian Cross
-(Exhibit: Keynesian Cross) In this graph, if firms are producing at level Y₃, 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 Y₃, then inventories will ______, inducing firms to ______ production.

Quizplus · Accepted Answer

If firms are producing at a level above the equilibrium (where aggregate demand equals aggregate supply), inventories will rise because goods are not being sold as expected. This accumulation of unsold goods will induce firms to decrease production to adjust for the lower than anticipated demand.

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