If an unintended increase in business inventories occurs,
A) we can expect aggregate production to be unaffected.
B) we can expect businesses to increase the level of production.
C) we can expect businesses to lower the level of production.
D) aggregate expenditures must exceed the domestic output.

Question

Quizplus · Accepted Answer

If there is an unintended increase in business inventories, it means that businesses have produced more goods than consumers have purchased. In order to correct this imbalance, businesses will need to lower the level of production, otherwise they will be left with excessive inventories that they cannot sell. Therefore, we can expect businesses to lower the level of production.

If an Unintended Increase in Business Inventories Occurs