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UPSC General Studies Sample Paper General Studies Sample Paper-5

  • question_answer
    If firms find that consumers are purchasing more than expected, which of the following would you expect?

    A)  Aggregate Expenditure (AE) will likely be greater than GDP.

    B)  The economy will adjust to macro-economic equilibrium as inventories rise and production and employment fall.

    C)  The economy will adjust to macro-economic equilibrium as inventories fall and production and employment fall.

    D)  Aggregate Expenditure (AE) will likely be less than GDP.

    Correct Answer: A

    Solution :

    [a] The Aggregate Expenditure (AE) is defined as the total amount that firms and households plan to spend on goods and services at each level of income. When income rises, the purchasing power also rises correspondingly. So, when AE rises, it also increase Aggregate Demand (AD). The increase of AD would be more than its previous GDP.


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