If the economy is operating at a point where the aggregate expenditure line lies below the 45-degree line (AE = GDP),
A)total spending is more than total output.
B)unwanted business inventories will increase.
C)businesses will reduce their future production.
D)both b and c are correct.

Question

Quizplus · Accepted Answer

When the aggregate expenditure line is below the 45-degree line, it indicates that total spending is less than total output, leading to an accumulation of unwanted inventories. Consequently, businesses will likely reduce future production to adjust for the excess inventory.

If the Economy Is Operating at a Point Where the Aggregate