If total intended spending is greater than GDP
A) firms cut production and avoid expansion.
B) inventories fall below desired levels.
C) interest rates decline sharply.
D) business investment will lag.
E) GDP tends to remain unchanged.

Question

Quizplus · Accepted Answer

If total intended spending is greater than GDP, it indicates that there is excess demand in the economy. As a result, firms will experience shortages of inventory, which could lead to a reduction in output and production. Therefore, inventories fall below desired levels, making option B the correct answer.

If Total Intended Spending Is Greater Than GDP