If aggregate planned expenditure exceeds real GDP then
A)inventories decrease, and the AE curve shifts downward.
B)inventories increase, and the AE curve shifts upward.
C)inventories decrease, and as real GDP increases, a movement up along the AE curve occurs.
D)inventories increase, and as real GDP increases, a movement up along the AE curve occurs.
E)inventories increase, and the short-run aggregate supply curve shifts rightward.

Question

Quizplus · Accepted Answer

When aggregate planned expenditure exceeds real GDP, firms sell more than they produce, leading to a decrease in inventories. As a result, firms increase production, causing real GDP to rise, which is represented by a movement up along the AE curve.

If Aggregate Planned Expenditure Exceeds Real GDP Then