Question

When aggregate demand is greater than aggregate supply inventories will?

Answer 1

iNVENTORY WILL FALLS

Answer 2

This creates a difference in inflation

Explanation:

If aggregate demand is greater than aggregate supply then there will be excess demand in the economy

Because people are demanding more than what the firms are supplying.

• This will create inflation in the economy because the prices of goods and services will increase due to less supply in the market and the resources are fully employed in the market.

• This creates a difference in inflation which measures the amount of excess demand over excess supply at full employment level.

• So, excess of aggregate demand over aggregate supply causes inflation in the economy.