If Y AE:
A)there will be a build-up of inventories in the economy.
B)the stock of inventories will fall in the economy.
C)managers will respond by ramping up production.
D)the economy has surpassed potential GDP.

Question

If Y > AE:
A)there will be a build-up of inventories in the economy.
B)the stock of inventories will fall in the economy.
C)managers will respond by ramping up production.
D)the economy has surpassed potential GDP.

Quizplus · Accepted Answer

When Y (actual output) is greater than AE (aggregate expenditure), it means that there is excess supply in the economy. This indicates that there will be a build-up of inventories in the economy, as firms are producing more goods than consumers are willing or able to purchase. To balance the market, firms may need to reduce their output or lower prices, which can lead to a decrease in GDP.