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When aggregate planned expenditure is less than GDP, there is an unintended ___________ in inventories, firm’s_______________ production and GDP begins to ___________ (4 marks) A Decrease, increase, increase B Increase, decrease, decrease C Increase, decrease, increase D Decrease, increase, decrease
When aggregate planned expenditure is less than GDP, there is an unintended ___________ in inventories, firm’s_______________ production and GDP begins to ___________ (4 marks)
A Decrease, increase, increase
B Increase, decrease, decrease
C Increase, decrease, increase
D Decrease, increase, decrease
Expert Solution
Ans: B Increase, decrease, decrease
When aggregate planned expenditure is less than GDP, there is an unintended increase in inventories, firm’s decrease production and GDP begins to decrease.
If aggregate planned expenditure is less than GDP(output), it means that firms are producing more than they are able to sell. The unsold goods will add to the inventories, and hence there is unintended increase in inventories. This leads to firms reducing their production output and hence GDP begins to fall.
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