If at some level of GDP the economy is experiencing an unplanned decrease in inventories:
A)the aggregate level of saving will decline.
B)the price level will fall.
C)the business sector will lay off workers.
D)domestic output will increase.

Question

Quizplus · Accepted Answer

An unplanned decrease in inventories indicates that firms have sold more goods than they had anticipated. To replenish their inventories, firms will increase their production which in turn will increase the output of the economy. Therefore, option D is the correct choice. Option A is incorrect as aggregate saving is not directly related to changes in inventories. Option B is incorrect as a fall in price level is not a necessary consequence of unplanned decrease in inventories. Option C is also incorrect as increased production will require more labor, not less.

If at Some Level of GDP the Economy Is Experiencing