If aggregate planned expenditure is less than real GDP then
A) consumers increase their planned expenditure until aggregate planned expenditure increases to equal real GDP.
B) firms increase their planned expenditure until aggregate planned expenditure increases to equal real GDP.
C) firms' inventories will increase and real GDP will decrease as production falls.
D) firms' inventories will decrease and real GDP will decrease as production falls.

Question

Quizplus · Accepted Answer

When aggregate planned expenditure is less than real GDP, it means that the total amount of goods and services that businesses and consumers plan to buy is less than what is being produced. This leads to an accumulation of unsold goods, or an increase in firms' inventories. As a result, firms will likely reduce production to adjust to the lower level of demand, which in turn causes real GDP to decrease.

If Aggregate Planned Expenditure Is Less Than Real GDP Then