U.S. business inventories increase Business inventories in the United States rose 0.4% in July after no change in the prior month. An increase in inventories adds to gross domestic product while a decrease subtracts from it. Source: U.S. Department of Commerce, September 13, 2019 Explain why an increase in inventories adds to gross domestic product but why it matters whether an increase in inventories is planned or unplanned. A planned increase in inventories _. A. decreases investment, which decreases equilibrium expenditure and real GDP B. increases investment, which increases equilibrium expenditure and real GDP C. shifts the AE curve upward, so firms decrease production and real GDP decreases to reach equilibrium expenditure D. shifts the AE curve downward, so firms decrease production and real GDP decreases E. increases consumption expenditure, which increases equilibrium expenditure and real GDP An unplanned increase in inventories _. A. occurs when real GDP exceeds aggregate planned expenditure, so firms increase production and real GDP increases B. occurs when real GDP exceeds aggregate planned expenditure, so firms decrease production and real GDP decreases C. increases investment, which increases equilibrium expenditure and real GDP D. occurs when aggregate planned expenditure exceeds real GDP, so firms decrease production and real GDP decreases E. occurs when aggregate planned expenditure exceeds real GDP, so firms increase production and real GDP increas

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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U.S. business inventories increase

Business inventories in the United States rose 0.4% in July after no change in the prior month. An increase in inventories adds to gross domestic product while a decrease subtracts from it.

Source: U.S. Department of Commerce, September 13, 2019

Explain why an increase in inventories adds to gross domestic product but why it matters whether an increase in inventories is planned or unplanned.

A planned increase in inventories _______.

decreases investment, which decreases equilibrium expenditure and real GDP

increases investment, which increases equilibrium expenditure and real GDP

shifts the AE curve

upward,

so firms decrease production and real GDP decreases to reach equilibrium expenditure

shifts the AE curve

downward,

so firms decrease production and real GDP decreases

increases consumption expenditure, which increases equilibrium expenditure and real GDP

An unplanned increase in inventories _______.

occurs when real GDP exceeds aggregate planned expenditure, so firms increase production and real GDP increases

occurs when real GDP exceeds aggregate planned expenditure, so firms decrease production and real GDP decreases

increases investment, which increases equilibrium expenditure and real GDP

occurs when aggregate planned expenditure exceeds real GDP, so firms decrease production and real GDP decreases

occurs when aggregate planned expenditure exceeds real GDP, so firms increase production and real GDP increas

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