Answer to Question #208527 in Macroeconomics for lihle

Question

what changes will take place if spending is less than production and income

Answer 1

The reason for this is that changes in aggregate expenditures circulate throughout the economy: consumers buy from businesses, firms pay workers and suppliers, workers and suppliers buy items from other firms, and so on. As a result, the initial change in aggregate expenditures is spent many times.

Companies will experience overstocking through this period thus affecting the economy negatively which may result to inflation.