In the Keynesian model, whenever planned investment is greater than planned saving
A) the amount of planned investment will decrease, and real GDP will decrease.
B) the amount of planned investment will decrease, and real GDP will remain unchanged.
C) there will be an unplanned inventory decrease, and GDP will eventually increase.
D) there will be an unplanned inventory increase, and GDP will eventually decrease.

Question

Quizplus · Accepted Answer

Whenever planned investment is greater than planned saving, there will be an excess demand for goods and services. Firms, anticipating this, will increase production and create unplanned inventory accumulation. However, production cannot be sustained at this level without increasing investment or cutting back on production. Eventually, the unplanned inventory buildup will lead to a decrease in planned investment and a decrease in real GDP. However, in the short run, GDP may increase as firms increase production to meet the excess demand.

In the Keynesian Model, Whenever Planned Investment Is Greater Than