Wize University Macroeconomics Textbook > Aggregate Expenditure
Adjustments Towards Equilibrium
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Adjustments Towards Equilibrium
When the economy is not at equilibrium, two things will change to bring us back to equilibrium: the inventory and the output.
If Output (Income) is Greater Than Aggregate Expenditure
When Y > AE the inventory will
increase
and firms will respond by decreasing
output until Y = AEIf Output (Income) is Less Than Aggregate Expenditure
When Y < AE the inventory will
decrease
and firms will respond by increasing
output until Y = AE