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Are unplanned changes in inventories rising, falling, or constant at equilibrium GDP? Explain

Are unplanned changes in inventories rising, falling, or constant at equilibrium GDP? Explain

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Answer #1

Unplanned change in inventories happens when aggregate expenditure in economy either exceeds or is less than the GDP or total output produced in the economy.

If aggregate expenditure in economy exceeds the total output produced then in that case unplanned inventories fall.

If aggregate expenditure in economy is less than the total output produced then in that case unplanned inventories rises.

At equilibrium, aggregate expenditure equals GDP or total output produced.

So, at this level, there is no mismatch between aggregate expenditure and GDP and therefor unplanned inventories are constant at equilibrium GDP.

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