Question

Excessive aggregate spending leads to full employment level of output accompanied with ____________.

• A. lower income level
• B. poverty
• C. inflation
• D. none of the above

Answer 1

The correct option is C inflation

When the aggregate spending is excessive then it leads to output which has full employment of available resources then it means aggregate demand is more than aggregate supply, then the planned inventory would fall below the desired level. To bring back the Inventory at the desired level, the producers expand the output but due to full employment of the available resources the output remains the same which leads to inflation in the economy.