Which of the following best describes the cause-effect relationship among macroe

Question

Which of the following best describes the cause-effect relationship among macroecomic variables?

a. a decrease in total spending causes an increase in inventories, which causes a decrease in total output, which causes an increase in employment, which causes a decrease in national income

b. an increase in total spending causes a decrease in inventories, which causes an increase in total output, which causes an increase in employment, which causes an increase in national income

c. an increase in unemployment causes an increase in inventories, which causes an increase in total output, which causes an increase in total spending

d. an increase in employment causes an increase in inventories, which causes an increase in total output, which causes a decrease in total spending

e. an increase in the money supply causes a decrease in output, which causes an increase in inventories, which causes unemployment and total spending to rise

Explanation / Answer

Ans.b. An increase in total spending causes a decrease in inventories, which causes an increase in total output, which causes an increase in employment, which causes an increase in national income.

Explanation:

When total spending increases, inventories falls leading to increase in output. Because When inventories falls, firms will increase production by hiring more workers. This results in higher output and employment in the economy. Higher output also leads to higher GDP and National Income.

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