When the Aggregate demand is greater than the Aggregate supply, the economy will face a situation. Identify the related situation from the following :
Answer & explanation
Correct answer: option 3
The correct answer is option (3) : Unplanned decumulation of inventories
Change in inventories may be planned or unplanned. In case of an unexpected fall in sales, the firm will have unsold stock of goods which it had not anticipated. Hence there will be unplanned accumulation of inventories. In the opposite case where there is unexpected rise in the sales ( increase in aggregate demand) there will be unplanned decumulation of inventories.