Answer to Question #227794 in Macroeconomics for Lucy

Question

If aggretate exppenditure is greater than total income:

1. investment will decrease because such a high level cannot be sustained.
2. planned savings will decrease in line with investment.
3. output will increase to replenish depleted inventories.
4. investment will decrease to run down excessive inventories.
5. there is an error, since the two are same by definition

Answer 1

3.Output will increase to replenish depleted inventories.

When total consumption exceeds GDP, inventories fall, requiring businesses to increase production to match the new higher expenditures. Both real GDP and employment will rise as a result of this.