If there is an unplanned increase in inventories, aggregate planned expenditure is
A)greater than real GDP and firms decrease production.
B)less than real GDP and firms increase production.
C)less than real GDP and firms decrease production.
D)greater than real GDP and firms increase production.
E)less than real GDP and firms decrease investment.

Question

Quizplus · Accepted Answer

An unplanned increase in inventories means that firms have produced more goods than what was demanded, which implies that aggregate planned expenditure was less than real GDP. This will lead to a decrease in production because firms must adjust their output to match the lower demand.

If There Is an Unplanned Increase in Inventories, Aggregate Planned