Question

Suppose in an economy, planned spending is greater than planned output. Identify the correct option with respect to effects on the economy:
(i) Decrease in planned inventories in the economy
(ii) Rise in National Income
(iii) Decrease in real output level in the economy
(iv) Decrease in employment level in the economy

• A. Only (i)
• B. (i) and (ii)
• C. (iii) and (iv)
• D. (ii), (iii) and (iv)

Hint:

Excess planned spending leads to inventory depletion, national income increase, and more production to meet higher demand.

Answer 1

The Correct Option is B

\text{When planned spending exceeds planned output, inventories will decrease because more goods are being sold than expected. This will result in a rise in national income as firms increase production to meet demand.}