If the economy depicted in Figure 9.9 produced at a full-employment output level of $50 billion instead of the equilibrium output level,inventory levels would
A)Increase by $50 billion.
B)Increase by $25 billion.
C)Decrease by $25 billion.
D)Decrease by $50 billion.

Question

If the economy depicted in Figure 9.9 produced at a full-employment output level of $50 billion instead of the equilibrium output level,inventory levels would
A)Increase by $50 billion. 
B)Increase by $25 billion. 
C)Decrease by $25 billion. 
D)Decrease by $50 billion.

Quizplus · Accepted Answer

If the economy produced at a full-employment output level of $50 billion instead of the equilibrium output level of $75 billion, there would be excess inventory because firms are producing more than is demanded at the $50 billion output level. This excess inventory would lead firms to decrease production and decrease their inventories, causing inventory levels to decrease by $25 billion.

If the Economy Depicted in Figure 9