If planned aggregate expenditure is greater than total production,
A)actual inventories will equal planned inventories.
B)firms will experience an unplanned decrease in inventories.
C)GDP will decrease.
D)the economy is in equilibrium.
E)firms are likely to cut back on production.

Question

Quizplus · Accepted Answer

When planned aggregate expenditure is greater than total production, it means that firms are selling more goods than they are producing, which will lead to an unplanned decrease in inventories. This will prompt firms to increase production to match the demand, eventually leading to a new equilibrium where actual inventories match planned inventories. Therefore, choice B is the correct answer. A is incorrect because actual inventories will be lower than planned inventories. C is incorrect because GDP will only decrease if the decrease in production persists over time. D is incorrect because the economy is not in equilibrium in this scenario. E is incorrect because firms will likely increase production to match the demand.

If Planned Aggregate Expenditure Is Greater Than Total Production