Suppose the island of Catsylvania experiences a recession. As a result, consumers reduce spending on Kitty Chow and planned aggregate expenditures fall short of real GDP. As a result, unplanned inventories at Kitty Chow firms will decrease. increase. remain unchanged. Thankfully, the recession is very short and consumer spending on Kitty Chow increases to prerecession levels. What is most likely to occur first at Kitty Chow firms during this period of recovery?

Increase in Inventory level during recession

Increase in sale, price (may be) during recovery

Explanation:

Recession is a a decline in level of economic activity, characterised by 'Deficient Demand'

Deficient Demand : Aggregate Demand is less than Aggregate Supply at full employment level. Buyers willingness to buy is less than sellers willingness to sell. So, planned inventory (stock) level will increase. Hence, there will be less production, income, employment.

When economy starts recovering: Recovery is the post recession revival phase. It shows high production, income, employment growth levels. Many times, also includes price rise. So, when kitty chow firms resume to pre recession levels: their sales will rise, price also may rise because of more increase in demand.

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