When aggregate planned expenditure is less than GDP,
A) the economy definitely is at its equilibrium expenditure and firms do not change production.
B) the economy definitely is at its equilibrium expenditure but, even so, firms decrease production.
C) the economy might be at its equilibrium expenditure and, if it is, firms do not change their production.
D) firms increase production until the economy reaches equilibrium expenditure.
E) firms decrease production until the economy reaches equilibrium expenditure.

Question

Quizplus · Accepted Answer

When aggregate planned expenditure is less than GDP, it indicates that the total amount of goods and services produced in the economy is more than what is being planned to be purchased. This situation leads to an accumulation of unsold goods and services. To adjust, firms will typically decrease production to match the lower level of aggregate planned expenditure, moving towards an equilibrium where planned expenditure equals actual expenditure.

When Aggregate Planned Expenditure Is Less Than GDP