If unintended increases in business inventories occur, we can expect
A) a decline in GDP and rising unemployment.
B) inﬂation.
C) an increase in consumption.
D) an offsetting increase in planned investment.

Question

Quizplus · Accepted Answer

Unintended increases in business inventories are a sign that firms have produced more goods than consumers are purchasing. This leads to a decline in GDP (as inventory investment is subtracted from GDP) and rising unemployment if firms have to cut back on production and lay off workers to reduce inventories.

If Unintended Increases in Business Inventories Occur, We Can Expect