Use the figure below to answer the following questions.
Figure 11.2.2
The economy depicted does not engage in international trade and has no government.Planned aggregate expenditure AE) is equal to the sum of consumption expenditure C) and investment I).
-If there is an unplanned decrease in inventories, aggregate planned expenditure is
A)less than real GDP, and firms increase production.
B)greater than real GDP, and firms decrease production.
C)greater than real GDP, and firms increase production.
D)less than real GDP, and firms decrease production.
E)greater than real GDP, and firms increase investment.

Question

Use the figure below to answer the following questions.
  Figure 11.2.2
The economy depicted does not engage in international trade and has no government.Planned aggregate expenditure AE) is equal to the sum of consumption expenditure C) and investment I).
-If there is an unplanned decrease in inventories, aggregate planned expenditure is
A)less than real GDP, and firms increase production. 
B)greater than real GDP, and firms decrease production. 
C)greater than real GDP, and firms increase production. 
D)less than real GDP, and firms decrease production. 
E)greater than real GDP, and firms increase investment.

Quizplus · Accepted Answer

An unplanned decrease in inventories indicates that actual sales were higher than expected, meaning demand was greater than anticipated. This suggests that aggregate planned expenditure is greater than real GDP, as consumers and businesses are spending more than firms expected. Consequently, firms are likely to increase production to meet the higher demand and replenish their inventories.

Use the Figure Below to Answer the Following Questions