Figure 8.1 Alt text for Figure 8.1: In figure 8.1, a graph comparing real GDP and real aggregate expenditure.
Long description for Figure 8.1: The x-axis is labelled, real GDP, Y (trillions of 2002 dollars).The y-axis is labelled, real aggregate expenditure, AE (trillions of 2002 dollars).A line, labelled Y = AE, originates at the vertex and slopes up to the top right corner.Another line, labelled AE1, begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Both these lines intersect at point K, approximately three quarters of the way along both lines.Point J is plotted a little less than half way along the line AE1, to the left of point K.Point L is plotted close to the right end of the line AE1, to the right of point K.
-Refer to Figure 8.1.If the economy is at point L, what will happen?
A)Inventories have fallen below their desired level, and firms decrease production.
B)Inventories have fallen below their desired level, and firms increase production.
C)Inventories have risen above their desired level, and firms decrease production.
D)Inventories have risen above their desired level, and firms increase production.

Question

Figure 8.1  Alt text for Figure 8.1: In figure 8.1, a graph comparing real GDP and real aggregate expenditure.
Long description for Figure 8.1: The x-axis is labelled, real GDP, Y (trillions of 2002 dollars).The y-axis is labelled, real aggregate expenditure, AE (trillions of 2002 dollars).A line, labelled Y = AE, originates at the vertex and slopes up to the top right corner.Another line, labelled AE1, begins a little less than half way along the x-axis and slopes up to the end of the x-axis.Both these lines intersect at point K, approximately three quarters of the way along both lines.Point J is plotted a little less than half way along the line AE1, to the left of point K.Point L is plotted close to the right end of the line AE1, to the right of point K.
-Refer to Figure 8.1.If the economy is at point L, what will happen?
A)Inventories have fallen below their desired level, and firms decrease production. 
B)Inventories have fallen below their desired level, and firms increase production. 
C)Inventories have risen above their desired level, and firms decrease production. 
D)Inventories have risen above their desired level, and firms increase production.

Quizplus · Accepted Answer

At point L, aggregate expenditure is below real GDP, indicating that firms have produced more than what consumers are willing to purchase. This means that inventories have risen above their desired level and in response, firms will decrease production to reduce their inventories.

Figure 81 Alt Text for Figure 8