Final answer:
The correct answer to the student's question is A. there will be a decline in inventories, which occurs when planned investment exceeds actual investment. This indicates that businesses ended up with less stock than anticipated.
Step-by-step explanation:
If planned investment exceeds actual investment, there will be a decline in inventories. Actual investment is equal to the sum of planned investment and the change in inventory investment. Therefore, if planned investment is more than what was actually invested, it implies that less inventory was purchased or produced than what businesses intended to purchse or produce. As a consequence, the inventory level would decrease. The correct answer to the student's question is A. there will be a decline in inventories.
The national saving and investment identity illustrates the relationship between various economic components, indicating how changes in government budget deficits or surpluses can influence investment, savings, and the trade balance. The national saving and investment identity, written as S + (M - X) + (T - G) = I, represents the Supply of capital equaling the Demand for capital, with S being private savings, M - X depicting the trade deficit, T - G representing the government budget surplus, and I standing for investment.