In the aggregate expenditures model, if aggregate expenditures (AE) equal $6 trillion and GDP equals $7 trillion, then:
A) inventory depletion equals − $1 trillion.
B) inventory accumulation equals $1 trillion.
C) investment equals $1 trillion.
D) investment equals − $1 trillion.

Question

Quizplus · Accepted Answer

When AE is less than GDP, it means that goods and services produced are more than what consumers and firms are currently spending. To match the production levels and maintain equilibrium, firms start accumulating inventories. In this case, the inventory accumulation is $1 trillion ($7 trillion GDP - $6 trillion AE). Choice A and D are incorrect as there is no information provided about changes in inventories. Choice C is incorrect as investment spending cannot be determined from the given information.

In the Aggregate Expenditures Model, If Aggregate Expenditures (AE) Equal