If the level of real GDP is $14 trillion while aggregate planned expenditure is $15 trillion, then
A) real GDP increases and planned expenditure decreases reaching equilibrium in the middle.
B) inventories fall more than planned, leading firms to increase production.
C) inventories rise more than planned, leading firms to increase production.
D) inventories rise more than planned, leading firms to cut production.
E) aggregate planned expenditure decreases to reach the equilibrium of $14 trillion.

Question

Quizplus · Accepted Answer

When aggregate planned expenditure exceeds the level of real GDP, it indicates that consumers are spending more than expected. This leads to a decrease in inventories more than what was planned, as firms are selling more goods than they anticipated. Consequently, to replenish their inventories, firms will increase production.

If the Level of Real GDP Is $14 Trillion While