When firms reduce their target level of inventories, equilibrium expenditure ________ and real GDP ________.
A)increases; decreases
B)decreases; increases
C)decreases; decreases
D)increases; increases
E)decreases; does not change

Question

Quizplus · Accepted Answer

When firms reduce their target level of inventories, they decrease their production, leading to a decrease in equilibrium expenditure and real GDP.

When Firms Reduce Their Target Level of Inventories, Equilibrium Expenditure