In a year, the ex post investment of an economy is Rs 90 crore. Of this, Rs 15 crore is an unintended accumulation of inventories. Households spend as they had planned. What was the ex ante investment, and how did ex ante aggregate demand compare with output?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs 75 crore; aggregate demand fell short of output by Rs 15 crore
Ex post investment includes stocks that pile up without being planned. Planned (ex ante) investment leaves them out. Unsold stocks also show that planned demand fell short of output.
Ex ante investment = 90 − 15 = Rs 75 crore
The Rs 15 crore of goods was produced but not demanded, so ex ante AD was below output by Rs 15 crore.
Option (2) Rs 105 crore; aggregate demand was more than output by Rs 15 crore — Incorrect. Unintended stocks are part of ex post investment, so they are taken away, not added.
Option (3) Rs 75 crore; aggregate demand was more than output by Rs 15 crore — Incorrect. Unsold stocks pile up when demand is less than output.
Option (4) Rs 90 crore; aggregate demand was equal to output — Incorrect. Ex post and ex ante investment differ by the unintended stocks.
NCERT (2026-27): “4.2 Determination of Income in Two-sector Model … If ex ante demand for final goods falls short of the output of final goods that the producers have planned to produce in a given year, equation (4.3) will not hold. Stocks will be piling up in the warehouses which we may consider as unintended accumulation of inventories. …” “4.2 Determination of Income in Two-sector Model … Thus even though planned Y is greater than planned C + I, actual Y will be equal to actual C + I, with the extra output showing up as unintended accumulation of inventories in the ex post I on the right hand side of the accounting identity.” |