In the income-expenditure framework, suppose planned aggregate expenditures are greater than real GDP.How will inventories be affected?
A) Inventories will stay the same.
B) Inventories will first increase, and then decrease.
C) Inventories will increase.
D) Inventories will decrease.

Question

In the income-expenditure framework, suppose planned aggregate expenditures are greater than real GDP.How will inventories be affected?  
A) Inventories will stay the same. 
B) Inventories will first increase, and then decrease. 
C) Inventories will increase. 
D) Inventories will decrease.

Quizplus · Accepted Answer

When planned aggregate expenditures exceed real GDP, firms sell more goods than expected, leading to a decrease in inventories.

In the Income-Expenditure Framework, Suppose Planned Aggregate Expenditures Are Greater