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This year, the aggregate quantity supplied by sellers in the United States is $15 trillion worth of goods and services
This year, the aggregate quantity supplied by sellers in the United States is $15 trillion worth of goods and services. The aggregate quantity demanded by buyers during the same year is $14.5 trillion worth of goods and services. It follows that
a. the price level is likely to increase.
b. at the current price level, there will be an unintended build-up of inventories, which will cause real GDP to decline as producers reduce orders for new products and reduce employment.
c. the economy is in macroeconomic equilibrium at the current price level.
d. at the current price level, there will be an unintended reduction of inventories, which will cause real GDP to increase as producers increase orders for new inventory and increase employment.
Expert Solution
- The correct option is (b). At the current price level, there will be an unintended build-up of inventories, which will cause real GDP to decline as producers reduce orders for new products and reduce employment.
Here, it is given that in the US economy, the quantity supplied is greater than the quantity demanded; therefore, at the current price level, the producers have some unsold stock for the next year. Henceforth, this will cause the real GDP to fall as the producer will curtail their production of new products that further tends to raise the unemployment level in the economy.
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