Inventory levels unexpectedly fall and as a result firms increase the quantity of goods and services they produce.Which of the following is consistent with these two occurrences?
A) TP is greater than TE.
B) TP is less than TE.
C) TE is equal to TP minus the rise in inventories above the optimum inventory level.
D) TP is equal to TE.
E) b and c

Question

Quizplus · Accepted Answer

When inventory levels unexpectedly fall, it indicates that actual sales (Total Expenditures, TE) were higher than what firms anticipated, leading them to produce less than what was demanded (Total Production, TP). Thus, TP is less than TE.

Inventory Levels Unexpectedly Fall and as a Result Firms Increase