Firms react to unplanned increases in inventories by
A) reducing output.
B) increasing output.
C) increasing planned investment.
D) increasing consumption.

Question

Quizplus · Accepted Answer

When inventories increase unplanned, it means that firms are producing more than what is being demanded by consumers. This signals a decrease in demand for their products, which in turn leads firms to cut back on production to avoid further accumulation of inventory. Therefore, the correct choice is A, reducing output.

Firms React to Unplanned Increases in Inventories by