If aggregate planned expenditure exceeds real GDP, then inventories
A)increase and real GDP increases.
B)increase and real GDP falls.
C)decrease and real GDP increases.
D)decrease and real GDP decreases.
E)remain constant and real GDP remains constant.

Question

Quizplus · Accepted Answer

When aggregate planned expenditure exceeds real GDP, firms sell more than they produce, leading to a decrease in inventories. This encourages firms to increase production, causing real GDP to increase.

If Aggregate Planned Expenditure Exceeds Real GDP, Then Inventories