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 $890 billion. We can expect that

A) firms will see an increase in inventories, and they will respond by decreasing output, thereby decreasing actual national income.
B) firms will see a decrease in inventories, and they will respond by increasing output, thereby increasing actual national income.
C) firms will decrease autonomous investment by $10 billion until equilibrium national income is reached at $890 billion.
D) actual national income will increase until equilibrium national income is reached at $900 billion.
E) firms will increase autonomous investment by $10 billion until equilibrium national income is reached at $900 billion.