FIGURE 21-3
-Refer to Figure 21-3. If national income is Y3 and the aggregate expenditure function is AE1,
A) the economy is in equilibrium.
B) there is unintended inventory accumulation and income will rise.
C) there is unintended inventory accumulation and income will fall.
D) there is unintended inventory decumulation and income will rise.
E) there is unintended inventory decumulation and income will fall.

Question

FIGURE 21-3
-Refer to Figure 21-3. If national income is Y3 and the aggregate expenditure function is AE1,
A) the economy is in equilibrium. 
B) there is unintended inventory accumulation and income will rise. 
C) there is unintended inventory accumulation and income will fall. 
D) there is unintended inventory decumulation and income will rise. 
E) there is unintended inventory decumulation and income will fall.

Quizplus · Accepted Answer

If national income is Y3 and the aggregate expenditure function is AE1, it indicates that aggregate expenditure is less than national income, leading to unintended inventory accumulation. As a result, firms will reduce production, causing income to fall.

FIGURE 21-3 -Refer to Figure 21-3. If National Income Is Y3 and Y3