If prices are fixed, when aggregate planned expenditure exceeds real GDP, then
A) inventories decrease, signaling firms to increase production and increase real GDP.
B) inventories increase, signaling firms to decrease production and decrease real GDP.
C) profits fall, signaling firms to decrease production and decrease real GDP.
D) None of the above answers are correct.

Question

Quizplus · Accepted Answer

When aggregate planned expenditure exceeds real GDP, it means that consumers are purchasing more than what is being produced, leading to a decrease in inventories. This signals firms to increase production to meet the higher demand, thereby increasing real GDP.

If Prices Are Fixed, When Aggregate Planned Expenditure Exceeds Real