When aggregate demand is lower than expected, inventories decline and the rate of unemployment falls.

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When aggregate demand is lower than expected, businesses experience a decrease in demand for their goods and services, leading to a decrease in production and sales. In turn, businesses may reduce their workforce to compensate for the decrease in demand, resulting in an increase in the rate of unemployment. If inventories are declining, it may actually indicate that businesses have been producing more than they have been selling and are now left with excess inventory. This could result in businesses cutting back on production and potentially further increasing unemployment.

When Aggregate Demand Is Lower Than Expected, Inventories Decline and the Rate