When PAE is less than Y, inventories should:
A) increase.
B) decrease.
C) remain the same.
D) decrease slightly before sharply increasing.

Question

Quizplus · Accepted Answer

When PAE (Planned Aggregate Expenditure) is less than Y (Potential Output), it indicates that demand for goods and services is lower than the economy's capacity to produce them. This implies that producers will have more unsold goods sitting in inventory, leading to an increase in inventories.

When PAE Is Less Than Y, Inventories Should