As the economy turns the corner into a recession, the level of unplanned inventories ________ and firms ________ production.
A) increases; begin to decrease
B) increases; begin to increase
C) decreases; begin to decrease
D) decreases; begin to increase
E) increases; do not change

Question

Quizplus · Accepted Answer

As the economy enters a recession, demand for goods and services decreases. Firms may have produced and stocked up on goods in anticipation of demand, however, with decreased demand, they are left with unplanned inventories. To reduce these unplanned inventories, firms need to decrease production, leading to a decrease in their inventories over time. This is consistent with choice A.

As the Economy Turns the Corner into a Recession, the Level