Using the aggregate expenditures model, which of the following occurs if aggregate expenditures exceed real GDP?
I. The economy will expand causing an increase in employment.
II. The economy will experience an inflationary gap.
III. The price level will rise.
IV. Actual investment will be less than planned investment.
A) I, II, and IV
B) I, III, and IV
C) I and IV
D) I, II, III, and IV

Question

Using the aggregate expenditures model, which of the following occurs if aggregate expenditures exceed real GDP? 
I. The economy will expand causing an increase in employment.
II. The economy will experience an inflationary gap.
III. The price level will rise.
IV. Actual investment will be less than planned investment.
A) I, II, and IV
B) I, III, and IV
C) I and IV
D) I, II, III, and IV

Quizplus · Accepted Answer

When aggregate expenditures exceed real GDP, the economy will expand as businesses increase production to meet demand, leading to higher employment (I). Actual investment will be less than planned investment because businesses will need to draw down inventories to meet the higher demand (IV).

Using the Aggregate Expenditures Model, Which of the Following Occurs