When real GDP exceeds aggregate planned expenditure,
A) the circular flow will increase.
B) GDP will decrease.
C) actual inventories decrease below their target.
D) a higher level of equilibrium income will prevail.

Question

Quizplus · Accepted Answer

When real GDP exceeds aggregate planned expenditure, it indicates that production is greater than what is being consumed or invested, leading to an accumulation of unsold goods. This results in an increase in inventories, prompting firms to reduce production, which in turn causes GDP to decrease.

When Real GDP Exceeds Aggregate Planned Expenditure