An economy with no government and no foreign trade tends to move toward equilibrium GDP because at output levels greater than equilibrium GDP,inventories are
A)Increasing,and actual investment exceeds desired investment.
B)Increasing,and actual investment is less than desired investment.
C)Decreasing,and actual investment exceeds desired investment.
D)Decreasing,and actual investment is less than desired investment.

Question

Quizplus · Accepted Answer

In an economy with no government and no foreign trade, when output levels are greater than equilibrium GDP, producers are making more goods than are being bought, leading to an increase in inventories. This situation indicates that actual investment (which includes changes in inventories) exceeds what businesses intended to invest (desired investment), as unsold goods accumulate.

An Economy with No Government and No Foreign Trade Tends