Question
Within the framework of the aggregate expenditures model, which of the following is true?
When spending on goods and services exceeds the level business decision makers anticipated, inventories will rise.
Equilibrium will always occur at the full-employment level of output.
A nation's imports will decline as the nation's disposable income increases.
When spending on goods and services exceeds the level of aggregate output, inventories will fall.
When spending on goods and services exceeds the level business decision makers anticipated, inventories will rise.
Equilibrium will always occur at the full-employment level of output.
A nation's imports will decline as the nation's disposable income increases.
When spending on goods and services exceeds the level of aggregate output, inventories will fall.
Answers
GPT-5 mini
Correct answer: "When spending on goods and services exceeds the level of aggregate output, inventories will fall."
Explanation: If planned spending (aggregate expenditures) is greater than current production, firms sell more than they produced and thus draw down inventories. The other statements are false for the reasons you likely know: equilibrium need not be at full employment, imports typically rise with disposable income, and if spending exceeds expectations inventories fall (not rise).
Explanation: If planned spending (aggregate expenditures) is greater than current production, firms sell more than they produced and thus draw down inventories. The other statements are false for the reasons you likely know: equilibrium need not be at full employment, imports typically rise with disposable income, and if spending exceeds expectations inventories fall (not rise).