In a small economy in 2011,aggregate expenditure was $850 million while GDP that year was $800 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

When aggregate expenditure exceeds GDP, it indicates that firms sold more than they produced, leading to a reduction in inventories, meaning firm investment in inventories was less than anticipated.

In a Small Economy in 2011,aggregate Expenditure Was $850 Million