Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million.If GDP during the same time period is equal to $23 million, what unplanned changes in inventories occurred?
A)There was an unplanned increase in inventories equal to $2 million.
B)There was no unplanned change in inventories.
C)There was an unplanned decrease in inventories equal to $2 million.
D)There was an unplanned decrease in inventories equal to $19 million.
E)There was an unplanned decrease in inventories equal to $3 million.

Question

Quizplus · Accepted Answer

We can use the equation for GDP: GDP = Consumption + Planned Investment + Government purchases + Net exports + Unplanned changes in inventories
Substituting the given values, we get:
$23 million = $5 million + $8 million + $10 million + $2 million + Unplanned changes in inventories
Simplifying, we get:
Unplanned changes in inventories = $23 million - ($5 million + $8 million + $10 million + $2 million)
Unplanned changes in inventories = $-2 million
This negative value indicates that there was an unplanned decrease in inventories. Therefore, choice C is the correct answer.

Consumption Is $5 Million, Planned Investment Spending Is $8 Million