Consider the Simplest Macro Model with Demand- Determined Output, Where

Multiple Choice

Consider the simplest macro model with demand- determined output, where AE = C + I. Suppose that actual national income is $900 billion and desired consumption plus desired investment is $920 billion. We can expect that

A) firms will decrease autonomous investment by $20 billion until equilibrium national income is reached at $900 billion.
B) firms will see an increase in inventories, and they will respond by decreasing output, thereby decreasing actual national income.
C) actual national income will decrease until equilibrium national income is reached at $900 billion.
D) firms will see a decrease in inventories, and they will respond by increasing output, thereby increasing actual national income.
E) firms will increase autonomous investment by $20 billion until equilibrium national income is reached at $920 billion.