In a small economy in 2011,aggregate expenditure was $800 million while GDP that year was $850 million.Which of the following can explain the difference between aggregate expenditure and GDP that year?
A) Aggregate expenditure is always less than GDP in developed countries.
B) Firm investment in inventories was less than anticipated in 2011.
C) Firm investment in inventories was greater than anticipated in 2011.
D) Aggregate expenditure is always less than GDP in developing countries.

Question

Quizplus · Accepted Answer

The difference between aggregate expenditure and GDP can be explained by unplanned changes in inventories. If firm investment in inventories was greater than anticipated, it means that not all produced goods were sold, leading to a higher GDP compared to aggregate expenditure.

In a Small Economy in 2011,aggregate Expenditure Was $800 Million