If Aggregate Expenditure Is Greater Than GDP, How Will the Economy

question 282

Multiple Choice

If aggregate expenditure is greater than GDP, how will the economy reach macroeconomic equilibrium?

• A)Inventories will decline and GDP and employment will decline.
• B)Inventories will rise and GDP and employment will decline.
• C)Inventories will decline and GDP and employment will rise.
• D)Inventories will rise and GDP and employment will rise.
• E)Inventories will rise, GDP will fall, and employment will rise.

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Definitions:

Saving

The process of setting aside a portion of current income for future use, either by depositing money in a bank or purchasing financial instruments.

Benefits-Received Principle

A theory of fairness holding that taxpayers should contribute to government (in the form of taxes) in proportion to the benefits they receive from public expenditures.

Public Goods

Items whose consumption is not depleted by an additional consumer and from which individuals cannot be excluded from using.

Tax Revenue

Revenue earned by governments through the application of taxes.