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IS$-$MP Analysis: Interest Rates and Output $$ End of Chapter Problem

Javier is a department manager at a big box store. Over the last month, sales have slumped, and he has lots of inventory going unsold. Now it's time to put in his orders to restock for next month.

a$.$ How, if at all, should Javier adjust his orders for new products?

The inventory buildup is not an equilibrium. Javier should respond by cutting back on his orders.

Javier should wait and see what happens next month, and if his inventory runs out, then he can place an order

$q,$ Javier should place his orders according to his initial estimates.

b$.$ How will his suppliers respond to this decision?

They will produce according to their initial demand estimates

They will cut back on production

They will not be affected.

They will expand their output.

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