Consumption is $5 billion, planned investment spending is $8 billion, government purchases are $10 billion, and net exports are equal to $2 billion.If GDP during that same time period is equal to $27 billion, what unplanned changes in inventories occurred?
A)There was an unplanned increase in inventories equal to $2 billion.
B)There was no unplanned change in inventories.
C)There was an unplanned decrease in inventories equal to $2 billion.
D)There was an unplanned decrease in inventories equal to $19 billion.
E)There was an unplanned increase in inventories of $3 billion.

Question

Quizplus · Accepted Answer

GDP is calculated as the sum of consumption, planned investment spending, government purchases, and net exports. In this case, GDP = $5 billion + $8 billion + $10 billion + $2 billion = $25 billion. However, the actual GDP is $27 billion, indicating an unplanned increase in inventories of $2 billion to make up the difference.

Consumption Is $5 Billion, Planned Investment Spending Is $8 Billion