Decrease in Business Inventories Slow Investment Growth

Answer the following questions to check your understanding of the story.

What is weaker external demand?

Weaker external demand is a decrease in __________.

a) business investment

b) imports

c) domestic consumption

d) exports

Where in the National Income and Product Accounts does a decrease in business inventories appear?

A decrease in business inventories appears as a negative component of ____________.

a) personal consumption expenditures

b) gross private domestic investment

c) as a positive entry in government expenditure on goods and services

d) exports

Was the decrease in business inventories planned or unplanned, and how can we know?

The decrease in business inventories was ___________ and we know because a decrease in autonomous expenditure (exports) brings ____________ in business inventories.

a) planned; a planned decrease

b) unplanned; an unplanned increase

c) unplanned; a planned increase

d) planned; an unplanned increase

Does the news clip describe the expenditure multiplier at work?

a) Yes, an increase in autonomous expenditure increases aggregate demand, which is followed by a further increase in aggregate demand due to an increase in induced expenditure.

b) Yes, a decrease in autonomous expenditure decreases aggregate demand, which is followed by a further decrease in aggregate demand due to a decrease in induced expenditure.

c) No, decrease in exports brings unplanned increase in business inventories, which induces a further decrease in output.

d) No, a decrease in exports brings unplanned decrease in business inventories, which induces a further increase in output.

Decrease in Business Inventories Slow Investment Growth

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