In reporting on real GDP growth in the second quarter of
2015, an article in the Wall Street Journal noted that the 2.3
percent annual growth rate “would have been stronger if it
hadn’t been for companies drawing down inventories.”
a. If companies are “drawing down inventories,” is aggregate
expenditure likely to have been larger or smaller
than GDP?
b. Assume that the reduction in inventories was unplanned.
What would you expect to happen to production in the
future following an unplanned reduction in inventories?