If planned aggregate expenditure is less than total production, then:
A)actual inventories will equal planned inventories.
B)firms will experience an unplanned increase in inventories.
C)GDP will increase.
D)the economy is in equilibrium.

Question

Quizplus · Accepted Answer

If planned aggregate expenditure is less than total production, it means that goods and services are not being consumed as much as they are being produced. This will result in firms having unsold goods, leading to an unplanned increase in inventories. Therefore, B is the correct answer. Option A is incorrect because actual inventories will exceed planned inventories in this situation. Option C is incorrect because GDP will not increase if goods are not being consumed. Option D is also incorrect because the situation described is not an equilibrium.

If Planned Aggregate Expenditure Is Less Than Total Production, Then