7. When an economy is in equilibrium, planned aggregate demand will be j ust equal to aggregate supply. If planned aggregate demand is temporarily less than output, businesses will be unable to sell as much as they had anticipated (planned) . Rather than continue to accumulate undesired inventories, they will reduce future output. I ncome will decline to the equilibrium level.

If planned aggregate demand is temporarily in excess of output, businesses will sell more of their products than they anticipate. Their inventories will be depleted below the desired level. In an effort to restore the depleted inventories, they will expand future output, and income will rise to the equilibrium level.