If the level of real GDP is $4 trillion while aggregate planned expenditure is $5 trillion, then
A) aggregate planned expenditure decreases to reach the equilibrium of $4 trillion.
B) inventories rise more than planned, leading firms to cut production.
C) inventories fall more than planned, leading firms to increase production.
D) real GDP increases and planned expenditure decreases reaching equilibrium in the middle.
E) inventories rise more than planned, leading firms to increase production.

Question

Quizplus · Accepted Answer

Since aggregate planned expenditure exceeds real GDP, inventories must fall more than planned, leading firms to increase production to meet the higher demand. This increase in production will lead to an increase in real GDP, bringing it to the equilibrium level.

If the Level of Real GDP Is $4 Trillion While