Consider the simplest macro model with a constant price level and demand- determined output. If desired aggregate expenditure is less than actual national income, then
A)actual national income is below the equilibrium level.
B)actual national income must be above the equilibrium level.
C)inventories begin to fall, causing national income to fall.
D)inventories begin to fall, causing firms to increase production.
E)actual national income must be at equilibrium.

Question

Quizplus · Accepted Answer

When desired aggregate expenditure is less than actual national income, it indicates that not all output is being purchased, leading to an accumulation of inventories. This suggests that actual national income is above the equilibrium level, as equilibrium is where desired expenditure equals actual income.

Consider the Simplest Macro Model with a Constant Price Level