If desired investment exceeds actual investment,then
A)A recessionary GDP gap will emerge.
B)Inventories are less than the desired level.
C)Inventories are accumulating beyond desired levels.
D)Cyclical unemployment exists.

Question

Quizplus · Accepted Answer

If the desired investment exceeds actual investment, it means that inventories are less than the desired level. This is because investment is a component of aggregate demand, and a shortfall in investment means that firms are not able to produce and stock goods at the desired levels. Hence, option B is the correct answer. Option A is incorrect because a recessionary gap emerges when actual GDP is less than the potential GDP, which may or may not be related to investment. Option C is incorrect because if inventories are accumulating beyond desired levels, it means that actual investment is higher than desired, which is the opposite of the scenario described in the question. Option D is also incorrect because cyclical unemployment is a result of a recessionary gap, and is not necessarily related to investment.

If Desired Investment Exceeds Actual Investment,then