In response to changing inventories in Figure 9.8,if the economy produces at full employment of $400 billion,firms will attempt to
A)Reduce employment and buy more machinery.
B)Reduce employment and buy less machinery.
C)Increase employment and buy more machinery.
D)Increase employment and buy less machinery.

Question

In response to changing inventories in Figure 9.8,if the economy produces at full employment of $400 billion,firms will attempt to 
A)Reduce employment and buy more machinery. 
B)Reduce employment and buy less machinery. 
C)Increase employment and buy more machinery. 
D)Increase employment and buy less machinery.

Quizplus · Accepted Answer

If the economy is already at full employment, firms cannot increase employment. However, they can reduce employment if inventories are increasing. Additionally, if inventories are increasing, it means that the demand for goods is decreasing. Therefore, firms should buy less machinery to avoid overproduction and excess inventory.

In Response to Changing Inventories in Figure 9