Consider a Simple Macro Model with a Constant Price Level

question 47

Multiple Choice

Consider a simple macro model with a constant price level and demand- determined output. Suppose the level of actual national income is less than desired aggregate expenditure. In this case,

• A)there will be no change in national income because only actual expenditure is relevant.
• B)national income may increase or decrease, depending on the relative sizes of the average propensity to consume and the average propensity to save.
• C)national income will fall, because desired expenditures are less than actual expenditures.
• D)inventories will build up, causing national income to rise.
• E)shortages of goods and reductions in inventories will cause producers to increase output and national income to rise.

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