Use the figure below to answer the following questions.

Figure 27.2.2
The economy depicted does not engage in international trade and has no government. Planned aggregate expenditure (AE)is equal to the sum of consumption expenditure (C)and investment (I).
-Refer to Figure 27.2.2. When real GDP is $300 billion, real GDP
A)is less than aggregate planned expenditure by $25 billion, and firms decrease production.
B)exceeds aggregate planned expenditure by $25 billion, and firms increase production.
C)is the same as aggregate planned expenditure, and firms do not change production.
D)exceeds aggregate planned expenditure by $25 billion, and firms decrease production.
E)exceeds aggregate planned expenditure by $50 billion, and firms increase production.

Question

Use the figure below to answer the following questions.
  
Figure 27.2.2
The economy depicted does not engage in international trade and has no government. Planned aggregate expenditure (AE)is equal to the sum of consumption expenditure (C)and investment (I).
-Refer to Figure 27.2.2. When real GDP is $300 billion, real GDP
A)is less than aggregate planned expenditure by $25 billion, and firms decrease production. 
B)exceeds aggregate planned expenditure by $25 billion, and firms increase production. 
C)is the same as aggregate planned expenditure, and firms do not change production. 
D)exceeds aggregate planned expenditure by $25 billion, and firms decrease production. 
E)exceeds aggregate planned expenditure by $50 billion, and firms increase production.

Quizplus · Accepted Answer

When real GDP exceeds aggregate planned expenditure, it indicates that firms have produced more than what is being consumed or planned for. As a result, firms will decrease production to align with the lower level of aggregate planned expenditure.

Use the Figure Below to Answer the Following Questions