Figure 8.3 Alt text for Figure 8.3: In figure 8.3, a graph comparing real GDP and real aggregate expenditure.
Long description for Figure 8.3: 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).Line Y = AE, originates at the vertex and slopes up to the top right corner.Line 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 3 quarters of the way along both lines.Point J is plotted a little less than half way along line AE1, to the left of point K.Point L is marked close to the right end of the line AE1, to the right of point K.
-Refer to Figure 8.3.If the economy is at point J, what will happen?
A)Inventories have fallen below their desired level, so firms will decrease production.
B)Inventories have fallen below their desired level, so firms will increase production.
C)Inventories have risen above their desired level, so firms will decrease production.
D)Inventories have risen above their desired level, so firms will increase production.

Question

Figure 8.3  Alt text for Figure 8.3: In figure 8.3, a graph comparing real GDP and real aggregate expenditure.
Long description for Figure 8.3: 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).Line Y = AE, originates at the vertex and slopes up to the top right corner.Line 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 3 quarters of the way along both lines.Point J is plotted a little less than half way along line AE1, to the left of point K.Point L is marked close to the right end of the line AE1, to the right of point K.
-Refer to Figure 8.3.If the economy is at point J, what will happen?
A)Inventories have fallen below their desired level, so firms will decrease production. 
B)Inventories have fallen below their desired level, so firms will increase production. 
C)Inventories have risen above their desired level, so firms will decrease production. 
D)Inventories have risen above their desired level, so firms will increase production.

Quizplus · Accepted Answer

When the economy is at a point where inventories have fallen below their desired level, firms typically respond by increasing production to replenish their inventories to the desired level. This is to meet the existing demand more effectively.

Figure 83 Alt Text for Figure 8