Question

What happens when the Investment is lesser than Savings?

Options

• Aggregate Demand is more than Aggregate Supply.

• Aggregate Demand is less than the Aggregate Supply.

• Aggregate Demand is equal to the Aggregate Supply.

• Aggregate Demand is independent of Aggregate Supply.

Answer 1

Aggregate Demand is less than the Aggregate Supply.

Explanation:

When investment is less than savings, economic expenditure is less than what producers expected, resulting in an undesirable build-up of unsold stock. As a result, AD falls short of AS.