In an imaginary economy, the planned spending falls short of planned output at a certain level of employment. Arrange the following consequences of the same in sequential order.

(A) Unintended accumulation of inventories.
(B) The employment level falls.
(C) The output and income fall and the equilibrium is restored.
(D) Producers plan to produce less in the next period.

Choose the correct answer from the options given below:

(A), (D), (B), (C)

The correct answer is Option (3) → (A), (D), (B), (C)

This situation describes an economy where Aggregate Demand (Planned Spending) is less than Aggregate Supply (Planned Output/GDP), which means the economy is not in equilibrium. The adjustment process to restore equilibrium involves the following steps:

• (A) Unintended accumulation of inventories: Since people are buying less than what firms produced (Planned Spending < Planned Output), unsold goods pile up in the firms' warehouses. This is an unplanned increase in inventories.

• (D) Producers plan to produce less in the next period: Seeing the unwanted stock pile-up, producers realize they overproduced and will cut back on production in the subsequent production cycle to reduce their inventories to the desired level.

• (B) The employment level falls: A reduction in planned output means firms need less labor, leading to layoffs and a decrease in the level of employment.

• (C) The output and income fall and the equilibrium is restored: The decrease in employment leads to a fall in total output (GDP) and a corresponding fall in national income. This process continues until the reduced level of output (and thus income) is low enough to make the total planned spending equal to the total planned output, thereby restoring equilibrium ($AD=AS$) at a lower level of income.