When aggregate planned expenditure is less than GDP,
A) firms increase production until the economy reaches equilibrium expenditure.
B) firms decrease production until the economy reaches equilibrium expenditure.
C) the economy might be at its equilibrium expenditure and if it is, firms do not change their production.
D) the economy definitely is at its equilibrium expenditure and firms do not change production.
E) the economy definitely is at its equilibrium expenditure but even so, firms decrease production.

Question

Quizplus · Accepted Answer

When aggregate planned expenditure is less than GDP, firms experience an unplanned increase in inventories, prompting them to decrease production until the economy reaches equilibrium expenditure.

When Aggregate Planned Expenditure Is Less Than GDP