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

Question

Quizplus · Accepted Answer

If aggregate planned expenditures are less than real GDP, it means that goods and services produced have not been fully purchased, resulting in an unplanned increase in inventories beyond their planned levels. Businesses respond to this by decreasing their production to avoid further inventory buildup. This decrease in production reduces real GDP to the equilibrium level where planned expenditures would equal real GDP.

If Aggregate Planned Expenditures Are Less Than Real GDP, Then