When current real production of goods and services (real GDP)is greater than planned aggregate expenditure
A)inventories of goods and services are rising
B)firms will increase production to replenish depleted inventories
C)businesses and households will increase planned aggregate spending because it is in their interest to promote employment
D)the price level will automatically rise to restore equilibrium in the economy
E)leakages must equal planned injections

Question

Quizplus · Accepted Answer

When current real production of goods and services is greater than planned aggregate expenditure, it means that businesses are producing more than what consumers and households are buying. This results in an accumulation of inventories of goods and services, which is represented by the difference between the actual output and the planned expenditure. Therefore, choice A is correct.

Choice B is not correct because businesses would not increase production to replenish depleted inventories when there is already excess capacity, that is, when inventories are increasing.

Choice C is also not correct because if firms are already producing more than what households and businesses are purchasing, there is no need to increase planned aggregate spending.

Choice D is not correct because the price level will not automatically rise to restore equilibrium in the economy when there is an increase in output due to excess capacity.

Choice E is not applicable in this scenario.

When Current Real Production of Goods and Services (Real GDP)is