When aggregate expenditure is more than GDP, which of the following is false?

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BlackTom AI · Accepted Answer

The question asks us to identify which statement is false when aggregate expenditure exceeds GDP.
First, recall the basic macroeconomic identity in a simple expenditure model: Y = C + I + G + NX, and in equilibrium, AE = Y. When aggregate expenditure (AE) is greater than GDP (Y), actual spending exceeds output, which signals that firms are selling more than they are producing and thus their inventories are falling. This creates an unplanned decrease in inventories as firms run down existing stocks to meet higher demand.
Given that framework, an option asserting an unplanned increase in inventories would be false, because the situation AE > GDP implies inventories would be drawn down (unplanned decrease), not added to. If an option claimed an unplanned rise in inventories, that would contradict the derived impulse from AE > GDP and would be the false statement.
Since the list of answer choices is not provided in the prompt, I cannot analyze each specific option individually. However, the core conceptual takeaway remains: when AE > GDP, unplanned inventories decrease; the statement that there was an unplanned increase in inventories is false.
If there were other choices, you would evaluate them against this benchmark: any option stating inventories rose unplanned would be false under AE > Y, while options aligning with a fall in inventories or with AE falling short of GDP would be more in line with the equilibrium dynamics described by the expenditure–output relationship.

MCD2090 Macroeconomics - Trimester 2 - 2025

When aggregate expenditure is more than GDP, which of the following is false?

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