How do firms typically respond to a sudden drop in consumer purchases?
A) Unplanned investment rises, and then output falls.
B) Both investment and output fall.
C) Planned investment falls, and then unplanned investment rises.
D) Output falls, and then investment falls.

Question

Quizplus · Accepted Answer

When there's a sudden drop in consumer purchases, firms end up with more inventory than expected, leading to an increase in unplanned investment. Eventually, firms reduce output to adjust to the lower demand.

How Do Firms Typically Respond to a Sudden Drop in Consumer