If aggregate planned expenditure exceeds GDP,
A) actual inventories decrease below their target.
B) planned investment is greater than planned savings.
C) planned consumption expenditure is less than actual consumption expenditure.
D) firms are not maximizing their profits.

Question

Quizplus · Accepted Answer

If aggregate planned expenditure exceeds GDP, it means that there is excess demand in the economy, leading to a reduction in inventories below their target levels. Firms will respond to this by increasing production to meet demand, which means that they will need to draw down on inventory to meet the shortfall. This results in a decrease in actual inventories below their target levels.

If Aggregate Planned Expenditure Exceeds GDP