Consider the Simplest Macro Model with Demand-Determined Output,where AE =

question 92

Multiple Choice

Consider the simplest macro model with demand-determined output,where AE = C + I.Suppose actual national income is $900 billion and desired consumption plus desired investment is $920 billion.We can expect that

• A)firms will see an increase in inventories,and they will respond by decreasing output,thereby decreasing actual national income.
• B)firms will decrease autonomous investment by $20 billion until equilibrium national income is reached at $900 billion.
• C)firms will increase autonomous investment by $20 billion until equilibrium national income is reached at $920 billion.
• D)firms will see a decrease in inventories,and they will respond by increasing output,thereby increasing actual national income.
• E)actual national income will decrease until equilibrium national income is reached at $900 billion.

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