Question

We say that the economy as a whole is in macroeconomic equilibrium if

A. aggregate expenditure equals GDP.
B. aggregate expenditure equals total production.
C. total spending equals total production.
D. total spending equals GDP.
E. all of the above.

Answer 1

The answer is: E. all of the above

Step-by-step explanation:

An economy is in macroeconomic equilibrium when the total spending in the economy (aggregate expenditures) equals the gross domestic product.

For example, if aggregate expenditure is lower than the GDP, then inventories will rise (due to unsold goods), leading to a decrease in the GDP and higher unemployment.

On the other hand, when aggregate expenditures are higher than the GDP, then inventories will shrink, leading to an increase in the GDP and lower unemployment.