In the income-expenditure framework, if planned aggregate expenditures are less than real GDP.How will inventories be affected?
A) Inventories will stay constant.
B) Inventories will match aggregate expenditures.
C) Inventories will increase.
D) Inventories will decrease.

Question

In the income-expenditure framework, if planned aggregate expenditures are less than real GDP.How will inventories be affected?  
A) Inventories will stay constant. 
B) Inventories will match aggregate expenditures. 
C) Inventories will increase. 
D) Inventories will decrease.

Quizplus · Accepted Answer

When planned aggregate expenditures are less than real GDP, it means that the total spending by all sectors of the economy is less than the total output produced. As a result, not all of the goods produced are sold, leading to an accumulation of unsold goods, which increases inventories.

In the Income-Expenditure Framework, If Planned Aggregate Expenditures Are Less