Equilibrium expenditure is defined as the level of aggregate expenditure where
A) spending equals output.
B) aggregate planned expenditure equals real GDP.
C) total inventories equal zero.
D) actual aggregate expenditure equals real GDP.

Question

Quizplus · Accepted Answer

Equilibrium expenditure is the level of aggregate expenditure where aggregate planned expenditure (which includes consumption spending, planned investment spending, planned government spending, and planned net exports) equals real GDP. This is because at this level of spending, the total amount of goods and services produced (output) is also equal to real GDP, and there is no incentive for firms to adjust production levels or change inventory levels.

Equilibrium Expenditure Is Defined as the Level of Aggregate Expenditure