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Indicate whether the following statement is true or false. Along an IS curve there are no...

Indicate whether the following statement is true or false.

Along an IS curve there are no unplanned changes in inventories.

True

False

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Answer #1

True

​​​​​​Along the IS curve, there is no change in unplanned inventories because IS curve represents all the combinations of interest rate and GDP where equilibrium in goods market is achieved.

At equilibrium GDP, there is no change in unplanned inventories because expenditures will exactly equal planned output levels which includes goods and services and planned investment.

So, along an IS curve, goods market is in equilibrium, and at equilibrium GDP, there is no change in unplanned inventories.

Therefore, along an IS curve, there are no unplanned changes in inventories.

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