The initial impact of a sudden decrease in the expected growth rate of gdp will most likely be a change in _____ investment spending.

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04-11-2022
Business

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The initial impact of a sudden decrease in the expected growth rate of gdp will most likely be a change in _____ investment spending.

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qwoffwhite qwoffwhite · Answer 1 · 2022-11-09T04:09:11-05:00

The initial impact of a sudden decrease in the expected growth rate of GDP will be a change in unplanned investment spending.

Firms will adjust their level of output in response to unanticipated changes in inventory that are equivalent to the difference between real GDP (Y) and aggregate demand: When AD > Y, businesses notice that their stocks have fallen below the required level, and they raise output to get the inventories back to the desired levels. Stocks of products kept in reserve for upcoming sales are known as inventories.

Actual sales that differ from expectations might cause organizations to invest in more inventory than they had originally anticipated. As manufacturers sell things from their inventories to fill this short-term surge in demand, an unanticipated rise in consumer spending will cause inventories to fall.

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