If aggregate planned expenditure exceeds real GDP, then inventories
A)remain constant and real GDP remains constant.
B)increase and real GDP falls.
C)increase and real GDP increases.
D)decrease and real GDP decreases.
E)decrease and real GDP increases.

Question

Quizplus · Accepted Answer

When aggregate planned expenditure exceeds real GDP, firms see their inventories decrease because consumers are buying more than expected. This typically leads firms to increase production, thereby increasing real GDP.

If Aggregate Planned Expenditure Exceeds Real GDP, Then Inventories