Using the aggregate expenditures model, which of the following occurs if aggregate expenditures fall short of real GDP?
I. Actual investment exceeds planned investment.
II. Unemployment rises.
III. The price level will fall.
IV. The economy will experience a recessionary gap.
A) I and II
B) I and III
C) I, II, and III
D) I, II, III, and IV

Question

Quizplus · Accepted Answer

When aggregate expenditures fall short of real GDP, actual investment exceeds planned investment because unsold goods accumulate as unintended inventory. This leads to a reduction in production, causing unemployment to rise.

Using the Aggregate Expenditures Model, Which of the Following Occurs