If firms' inventories exceed their planned inventories,firms
A)increase production.
B)increase income.
C)increase employment.
D)decrease production.
E)increase GDP.

Question

Quizplus · Accepted Answer

If firms' inventories exceed their planned inventories, it means that they have unsold goods and they have produced more than what they planned. In this situation, firms will decrease production to bring their inventories in line with their planned inventory levels. This is because holding excess inventory is expensive and increases the carrying costs for firms. Therefore, the best choice is D, which is to decrease production.

If Firms' Inventories Exceed Their Planned Inventories,firms