"If actual demand for final goods falls short of the actual output of final goods corresponding to full employment level, it may lead to an unintended accumulation of inventories." Do you agree with the given statement ? Give valid reasons in support of your answer. Complete the following table. Construct the consumption function at Rs. 200 crore level of income.

Question

Accepted Answer

**Yes, I agree with the statement.**

When actual demand for final goods falls short of actual output at full employment level, it means aggregate demand is less than aggregate supply. This leads to:
- **Unintended accumulation of inventories:** Goods produced but not sold pile up as unsold stock with firms
- **Firms respond by cutting production:** To clear inventories, firms reduce output
- **Fall in income and employment:** Reduced production leads to lower factor incomes and job losses
- **Deflationary gap widens:** The gap between actual AD and required AD increases

This situation characterizes **deficient demand** which leads to recessionary conditions in the economy.