Solve the question of and select the option from the choices A through D/E. Check your Answer and view the explanation.
Question: 8
When aggregate supply exceeds aggregate demand
- unemployment falls
- prices rise
- inventories accumulate
- unemployment develops
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Correct Answer: C
None
Sol. Deflation sets in when aggregate supply exceeds aggregate demand. Recession sets in. This will lead to a buildup in stocks (inventories) and this sends a signal to producers either to cut prices (to stimulate an increase in demand) or to reduce output so as to reduce the buildup of excess stocks.