If Prices Are Fixed, When Aggregate Planned Expenditure Exceeds Real

question 283

Multiple Choice

If prices are fixed, when aggregate planned expenditure exceeds real GDP, then

• A) inventories decrease, signaling firms to increase production and increase real GDP.
• B) profits fall, signaling firms to decrease production and decrease real GDP.
• C) inventories increase, signaling firms to decrease production and decrease real GDP.
• D) None of the above answers are correct.

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Definitions:

Equivalent Units

A concept in cost accounting used to allocate costs to units of production in processes where the units are not yet complete, converting them into the amount of finished goods units.

Assembly Department

A section within a manufacturing process where components are joined together to form a finished product.

FIFO Method

An inventory valuation method standing for "First In, First Out," assuming that the first items purchased or produced are the first ones sold.

Equivalent Units

A term used in cost accounting to represent a quantity of production expressed in terms of fully completed units, used in calculating the cost per unit during a period.