If planned aggregate expenditure is greater than total production
A)actual inventories will equal planned inventories.
B)firms will experience an unplanned decrease in inventories.
C)GDP will decrease.
D)the economy is in equilibrium.

Question

Quizplus · Accepted Answer

If planned aggregate expenditure is greater than total production, it means that firms are selling more than they are producing, which will lead to a decrease in inventories. This is an unplanned decrease and will require firms to increase production to restock their inventory levels. This situation is known as a macroeconomic disequilibrium. Option A is incorrect as actual inventories will be lower than planned inventories. Option C is also incorrect as GDP might increase in the short run due to high demand. Option D is incorrect as the economy is not in equilibrium.

If Planned Aggregate Expenditure Is Greater Than Total Production