Refer to the above diagram for a private closed economy.Unplanned investment in inventories will:
A)occur at all levels of GDP in excess of $200.
B)occur at all levels of GDP in excess of $600.
C)occur at all levels of GDP below $600.
D)not occur because the economy is necessarily in equilibrium.

Question

Refer to the above diagram for a private closed economy.Unplanned investment in inventories will:
A)occur at all levels of GDP in excess of $200. 
B)occur at all levels of GDP in excess of $600. 
C)occur at all levels of GDP below $600. 
D)not occur because the economy is necessarily in equilibrium.

Quizplus · Accepted Answer

Unplanned investment in inventories occurs when actual output is more or less than planned output. In the given diagram, the planned investment line intersects the GDP line at $600. Any level of GDP below $600 will result in actual output being less than planned and, therefore, unplanned inventory investment. Hence, option C is the correct answer.

Refer to the Above Diagram for a Private Closed Economy