When aggregate planned expenditure exceeds real GDP,
A) firms increase production and real GDP increases.
B) firms decrease production and real GDP increases.
C) firms decrease production and real GDP decreases.
D) firms increase production and real GDP decreases.
E) firms do nothing because induced expenditure will increase so that the equilibrium is reached.

Question

Quizplus · Accepted Answer

When aggregate planned expenditure exceeds real GDP, it indicates that demand is higher than the current level of production. Firms respond by increasing production to meet the higher demand, which leads to an increase in real GDP.

When Aggregate Planned Expenditure Exceeds Real GDP