Which of the following statements is true about equilibrium in the aggregate expenditures model?
I. Equilibrium is found at the level of real GDP at which the aggregate expenditures curve
Crosses the 45-degree line.
II. In equilibrium, real GDP produced equals aggregate expenditures.
III. In equilibrium, inventories equal zero.
IV. In equilibrium, real GDP produced equals potential real GDP.
A) I only
B) I and II only
C) I, II, and III only
D) I, II, III, and IV

Question

Quizplus · Accepted Answer

Statement I is true, as equilibrium occurs where the aggregate expenditures curve intersects the 45-degree line. Statement II is also true, as in equilibrium, total output (real GDP) is equal to total spending (aggregate expenditures). Statement III is not necessarily true - inventories could be positive or negative at equilibrium. Statement IV is not necessarily true either, as equilibrium production could be below or above potential real GDP.

Which of the Following Statements Is True About Equilibrium in the Aggregate