The equilibrium level of GDP can be determined by finding the output level at which the unplanned change in inventories is
A) greater than aggregate expenditures
B) less than aggregate expenditures
C) zero
D) equal to government expenditures
E) equal to consumer spending

Question

Quizplus · Accepted Answer

The equilibrium level of GDP occurs when the unplanned change in inventories is zero, meaning that firms are producing the amount of output that consumers are willing to purchase. If unplanned inventories are positive, it indicates that firms have produced more output than is being purchased, and they will decrease production in order to sell through their inventory. If unplanned inventories are negative, it indicates that firms have produced less output than is being purchased, and they will increase production to meet demand. Only when unplanned inventories are zero is the economy at its equilibrium level of GDP.

The Equilibrium Level of GDP Can Be Determined by Finding