In the aggregate expenditures model, in equilibrium,
A) consumption equals investment.
B) unplanned inventory changes equal zero.
C) inventory changes equal investment.
D) aggregate expenditures equal consumption.

Question

Quizplus · Accepted Answer

In equilibrium, the total amount of goods produced in the economy equals the total amount of goods purchased. This means that unplanned inventory changes must equal zero since firms will adjust production levels to match the level of sales. Choice A is incorrect because consumption and investment do not necessarily have to be equal in equilibrium. Choice C is incorrect because investment is only one component of aggregate expenditures, which also includes consumption, government spending, and net exports. Choice D is incorrect because aggregate expenditures also include government spending and net exports, not just consumption.

In the Aggregate Expenditures Model, in Equilibrium