In Figure 9.8,if full-employment income is produced at $400 billion,we can expect inventories to
A)Rise as a result of undesired inventory investment.
B)Rise as a result of undesired saving.
C)Fall as a result of undesired inventory investment.
D)Fall as a result of undesired saving.

Question

In Figure 9.8,if full-employment income is produced at $400 billion,we can expect inventories to
A)Rise as a result of undesired inventory investment. 
B)Rise as a result of undesired saving. 
C)Fall as a result of undesired inventory investment. 
D)Fall as a result of undesired saving.

Quizplus · Accepted Answer

Full-employment income refers to the level of output that corresponds to equilibrium in the goods market where total output is equal to total spending. If output is at full employment level, any increase in production beyond this level would result in a buildup of inventories as firms are unable to sell all their output. This means that inventories will rise as a result of undesired inventory investment.