In Figure 9.8,if full-employment income is produced at $400 billion,we can expect inventories to
A)Rise as a result of undesired inventory investment.
B)Rise as a result of undesired saving.
C)Fall as a result of undesired inventory investment.
D)Fall as a result of undesired saving.

Question

In Figure 9.8,if full-employment income is produced at $400 billion,we can expect inventories to 
A)Rise as a result of undesired inventory investment. 
B)Rise as a result of undesired saving. 
C)Fall as a result of undesired inventory investment. 
D)Fall as a result of undesired saving.

Quizplus · Accepted Answer

If full-employment income is produced at $400 billion and firms have already ordered the production of goods based on the assumption that they will be able to sell them all at this full capacity, but they are not able to sell them all, then they will be left with unsold inventory. This will lead to an increase in inventories and hence undesired inventory investment.