The correct answer is Option (4) → (C), (B), (A), (D)
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(C) 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. This is the initial condition: Planned spending (AD) is less than planned production (AS).
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(B) Stocks will be piling up in the warehouses, causing unintended accumulation of inventories. Since consumers are buying less than firms are producing, the unsold goods add to the firms' inventory. This is an unwanted or unintended accumulation of stock.
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(A) In this case, the firm has to run down existing inventories, which will lead to a fall in production and hence income. To get rid of the unintended inventory accumulation and reduce the stock back to the desired level, firms will cut back on future production. Reduced production means less hiring and lower factor payments, leading to a fall in income and output. (The phrase "run down existing inventories" in this context refers to the goal of bringing the high, unintended stock level down, primarily by reducing new production until sales catch up, rather than selling the stock quickly which is not happening due to low demand).
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(D) The process continues till Ex-ante demand for final goods equals to ex-ante output of final goods. The fall in income and output (and therefore a fall in aggregate supply) will continue until the total output produced is once again equal to the total demand, thus restoring the equilibrium.
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