In the Keynesian model, whenever planned saving exceeds planned investment
A) there will be unplanned inventory accumulation.
B) there will be unplanned inventory depletion.
C) real GDP will not be influenced.
D) the interest rate will remain unchanged.

Question

Quizplus · Accepted Answer

In the Keynesian model, when planned saving exceeds planned investment, it means that households, in general, are saving more than businesses are investing. This leads to a decrease in aggregate demand, which causes firms to reduce their production levels leading to unplanned or unintended inventory accumulation. This is because sales are lower than expected, causing businesses to have more goods on hand than they had planned.

In the Keynesian Model, Whenever Planned Saving Exceeds Planned Investment