Question

Suppose the island of Catsylvania experiences a recession. As a result, consumers reduce spending on Kitty Chow and planned aggregate expenditures fall short of real GDP. As a result, unplanned inventories at Kitty Chow firms will

Answer 1

Answer: b. Increase

Explanation:

The Economy of Catsylvania is in a Recession and Aggregate Expenditure has fallen below Real GDP. This means that demand will fall as customers will no longer buy as much as they used to because they can't afford to.

This leads to sales reducing in the country. As sales have slowed down, Inventory will pile up. This inventory was unplanned because it was expected that they would be sold.