If real GDP exceeds aggregate planned expenditure, what happens ...

[Charlie]

If real GDP exceeds aggregate planned expenditure, what happens to a firm's unplanned inventories?
 
  What will be an ideal response?

Question 2

What is a currency drain? How and why does it affect the money multiplier?
 
  What will be an ideal response?

[mariahkathleeen]

Answer to Question 1

If real GDP exceeds aggregate planned expenditure, firms are producing more goods and services than households, firms, and governments are planning to buy. As a result, firms will not be able to sell all of their production. The unsold amounts will wind up in their inventories and so unplanned inventory increases.

Answer to Question 2

An increase in currency held outside the banks is a currency drain. A currency drain decreases the size of the money multiplier. The money multiplier exists because when banks loan their excess reserves, the funds wind up in other banks as excess reserves, where they are loaned once again. As a result, an initial increase in reserves and the monetary base wind up increasing the quantity of money by a magnified amount. A currency drain means that when banks make loans, some of the funds are taken out as cash and not deposited back in another bank. Thus the other banks' excess reserves do not increase as much, so the amount that they can loan is decreased. The decrease in loans means that the ultimate increase in the quantity of money is less, so that the money multiplier is smaller.

[Charlie]

YES! Correct, THANKS for helping me on my review

[mochi09]

TYSM