Ignoring the government and foreign sectors, if planned investment spending is $50 billion, planned saving is $80 billion, and real Gross Domestic Product (GDP) is $130 billion, then unplanned inventories will
A) decrease $30 billion.
B) increase $30 billion.
C) increase $80 billion.
D) not change.

Question

Quizplus · Accepted Answer

Planned investment spending is less than planned saving, which means there is a savings excess of $30 billion. This excess will lead to an increase in unplanned inventories of $30 billion, as producers will accumulate more inventory than planned due to the lack of demand. This will be reflected in an increase in GDP, as the value of these inventories is included in the calculation of GDP.

Ignoring the Government and Foreign Sectors, If Planned Investment Spending