If aggregate planned expenditure is less than real GDP, then inventories
A)increase and real GDP increases.
B)remain constant and real GDP remains constant.
C)decrease and real GDP decreases.
D)decrease and real GDP increases.
E)increase and real GDP falls.

Question

Quizplus · Accepted Answer

When aggregate planned expenditure is less than real GDP, it means that the goods produced are not being sold as expected. This leads to an increase in inventories as unsold goods accumulate. Businesses may then reduce production in response to the growing inventories, leading to a fall in real GDP.

If Aggregate Planned Expenditure Is Less Than Real GDP, Then