Aggregate output will decrease if there is a(n) O unplanned rise in inventories. decrease in consumption. O increase in saving. unplanned fall in inventories.
Aggregate output will decrease if there is a(n) O unplanned rise in inventories. decrease in consumption. O increase in saving. unplanned fall in inventories.
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter23: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
Problem 1QR
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![### Understanding the Effect of Inventory Changes on Aggregate Output
#### Question:
**Aggregate output will decrease if there is a(n):**
- [X] unplanned rise in inventories.
- [ ] decrease in consumption.
- [ ] increase in saving.
- [ ] unplanned fall in inventories.
#### Explanation:
In the context of economics, an unplanned rise in inventories typically indicates that the goods produced are not being sold as expected. This can be a signal that demand for these goods has fallen, leading firms to reduce production in the future, hence decreasing aggregate output. Conversely, an unplanned fall in inventories would suggest that goods are selling faster than anticipated, prompting firms to increase production to meet the demand.
##### Key Concepts:
- **Unplanned Rise in Inventories**: This occurs when the supply of goods exceeds the demand, leading to surplus inventory. As a result, companies may cut back on production to align supply with demand, resulting in a reduction in overall economic output.
- **Decrease in Consumption**: While this might lead to increased inventories, it directly indicates that spending by consumers has fallen, which could also decrease aggregate output. However, it's not as strong an immediate indicator as an unplanned rise in inventories.
- **Increase in Saving**: Typically, an increase in saving can reduce consumption in the short term, potentially leading to a decrease in aggregate demand and thus output, as less money is spent on goods and services.
- **Unplanned Fall in Inventories**: If inventories fall unexpectedly, it usually means goods are being sold faster than anticipated, leading to potential increases in production to restock goods, thus potentially increasing aggregate output.
Understanding these dynamics is crucial for analyzing and predicting economic trends related to production, inventory management, and overall economic health.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5ebc1ad7-75c8-4429-b463-fa2a3d959ae1%2Fee642a09-05fb-4e9f-a908-c52c8ad20f5d%2F6zptxa_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Understanding the Effect of Inventory Changes on Aggregate Output
#### Question:
**Aggregate output will decrease if there is a(n):**
- [X] unplanned rise in inventories.
- [ ] decrease in consumption.
- [ ] increase in saving.
- [ ] unplanned fall in inventories.
#### Explanation:
In the context of economics, an unplanned rise in inventories typically indicates that the goods produced are not being sold as expected. This can be a signal that demand for these goods has fallen, leading firms to reduce production in the future, hence decreasing aggregate output. Conversely, an unplanned fall in inventories would suggest that goods are selling faster than anticipated, prompting firms to increase production to meet the demand.
##### Key Concepts:
- **Unplanned Rise in Inventories**: This occurs when the supply of goods exceeds the demand, leading to surplus inventory. As a result, companies may cut back on production to align supply with demand, resulting in a reduction in overall economic output.
- **Decrease in Consumption**: While this might lead to increased inventories, it directly indicates that spending by consumers has fallen, which could also decrease aggregate output. However, it's not as strong an immediate indicator as an unplanned rise in inventories.
- **Increase in Saving**: Typically, an increase in saving can reduce consumption in the short term, potentially leading to a decrease in aggregate demand and thus output, as less money is spent on goods and services.
- **Unplanned Fall in Inventories**: If inventories fall unexpectedly, it usually means goods are being sold faster than anticipated, leading to potential increases in production to restock goods, thus potentially increasing aggregate output.
Understanding these dynamics is crucial for analyzing and predicting economic trends related to production, inventory management, and overall economic health.
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