If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium?
A)Inventories will decline, and GDP and employment will decline.
B)Inventories will rise, and GDP and employment will decline.
C)Inventories will decline, and GDP and employment will rise.
D)Inventories will rise, and GDP and employment will rise.
E)Inventories will rise, GDP will rise, and unemployment will fall.

Question

Quizplus · Accepted Answer

When aggregate expenditure is less than GDP, it means that the total spending in the economy is less than what the economy is producing. This leads to an accumulation of unsold goods, causing inventories to rise. Businesses respond by reducing production, which leads to a decline in GDP and employment.

If Aggregate Expenditure Is Less Than GDP, How Will the Economy