When aggregate planned expenditure exceeds real GDP, there are unplanned ________ in inventories, and firms ________ production, so that real GDP ________.
A) decreases; decrease; increases
B) increases; decrease; decreases
C) increases; increase; increases
D) decreases; increase; increases
E) decreases; decrease; decreases

Question

Quizplus · Accepted Answer

When aggregate planned expenditure exceeds real GDP, it means that consumers are demanding more goods and services than what the firms are producing. In this situation, firms will have unplanned inventories (inventories that were produced but not sold). To address this situation, firms will reduce their production to avoid further unplanned inventories. Therefore, real GDP will decrease.

When Aggregate Planned Expenditure Exceeds Real GDP, There Are Unplanned