If planned aggregate expenditure is below potential GDP and planned aggregate expenditure equals GDP, then:
A)actual inventory investment will be less than planned inventory investment.
B)actual inventory investment will be greater than planned inventory investment.
C)the economy is in equilibrium at less than full employment.
D)the economy is at full employment.

Question

Quizplus · Accepted Answer

If planned aggregate expenditure is below potential GDP and planned aggregate expenditure equals GDP, it means that the actual output level is below the potential output level. This implies that there is a surplus of goods, resulting in unplanned inventory accumulation. To eliminate the inventory surplus, firms reduce their production, leading to a decrease in employment and output. Therefore, the economy is in equilibrium at less than full employment.

If Planned Aggregate Expenditure Is Below Potential GDP and Planned