If aggregate expenditure is greater than Real GDP, how will the economy reach macroeconomic equilibrium? A. Inventories will rise, and Real GDP and employment will decline. B. Inventories will rise, and Real GDP and employment will rise. C. Inventories will decline, and Real GDP and employment will decline. D. Inventories will decline, and Real GDP and employment will rise.

Question

River Flynn

Social Studies

1 April, 00:03

If aggregate expenditure is greater than Real GDP, how will the economy reach macroeconomic equilibrium? A. Inventories will rise, and Real GDP and employment will decline. B. Inventories will rise, and Real GDP and employment will rise. C. Inventories will decline, and Real GDP and employment will decline. D. Inventories will decline, and Real GDP and employment will rise.

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Answers (1)

Know the Answer?

Ana Bright · Answer 1

C). Inventories will decline, and GDP and employment will rise.

Explanation:

Macroeconomic equilibrium illustrates the stage where there is an equivalence between the quantity of aggregate demand and supply. Any changes in either of them or factors contributing to them could disbalance the equilibrium. As per the question, if the aggregate expenditure is greater than Real GDP, then the economy would reach equilibrium when inventories (stocks) of goods would decline and GDP and employment would rise to regain the stocks and meet the aggregate demand. This would bring equality between the aggregate demand and supply. Thus, option C is the correct answer.