According to the aggregate expenditure model,when faced with unwanted inventory,firms
A)decrease production.
B)increase production.
C)immediately cut prices.
D)do nothing and wait for equilibrium to be restored.
E)are forced to go out of business.

Question

Quizplus · Accepted Answer

In the aggregate expenditure model, unwanted inventories signal that actual output exceeds planned expenditure. To restore equilibrium, firms must then decrease production (which reduces output) to match planned expenditure.

According to the Aggregate Expenditure Model,when Faced with Unwanted Inventory,firms