If real Gross Domestic Product (GDP) is above its equilibrium level
A) firms are not maximizing their profits.
B) planned investment is greater than planned saving.
C) firms accumulate unplanned inventories.
D) planned consumption is less than actual consumption.

Question

Quizplus · Accepted Answer

If real GDP is above its equilibrium level, it means that the demand for goods and services is higher than their supply. This leads to firms accumulating unplanned inventories because they cannot sell all the goods they have produced. This situation is indicative of a disequilibrium in the market, where the quantity of goods demanded exceeds the quantity supplied, and prices are likely to increase. Firms are likely to respond by increasing their production to meet the higher demand, leading to a restoration of the market equilibrium.

If Real Gross Domestic Product (GDP) Is Above Its Equilibrium