In a small economy in 2013,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 2013.
C)Firm investment in inventories was greater than anticipated in 2013.
D)Aggregate expenditure is always less than GDP in developing countries.

Question

Quizplus · Accepted Answer

The difference between aggregate expenditure and GDP can be attributed to changes in firm investment in inventories. If actual investment in inventories is less than anticipated, aggregate expenditure will be higher than GDP. If actual investment in inventories is greater than anticipated, aggregate expenditure will be lower than GDP. Therefore, option B is the correct explanation. Options A and D are incorrect as they are generalizations that do not apply universally.

In a Small Economy in 2013,aggregate Expenditure Was $850 Million