If aggregate planned expenditures are less than real GDP,then
A)unplanned inventory changes equal zero.
B)there is no equilibrium level of real GDP.
C)inventories increase above their planned levels and businesses increase their production.
D)inventories increase above their planned levels and businesses decrease their production.
E)inventories decrease below their planned levels and businesses increase their production.

Question

Quizplus · Accepted Answer

If aggregate planned expenditures are less than real GDP, it means that firms have produced more goods and services than there is demand for. This leads to unplanned increases in inventories, i.e. inventories increase above their planned levels. In order to reduce their inventories back to planned levels, businesses decrease their production. Therefore, the correct answer is D.

If Aggregate Planned Expenditures Are Less Than Real GDP,then