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Nilanjan Bhowmick AIR 3, CSIR NET (Earth Science)
- UGC NET
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65. "high demand in this year's economy caught producers unaware, forcing their inventories to absorb this demand." how does this inventory change appear in the
65. "High demand in this year's economy caught producers unaware, forcing their inventories to absorb this demand." How does this inventory change appear in the GDP calculation when adding up all expenditures? (1) It is added when measuring GDP, as an element of investment demand (2) It is added when measuring GDP, as an element of consumption demand (3) it is subtracted when measuring GDP, as an element of investment demand (4) It is subtracted whcn measuring GDP, as an element of consumption demand
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Nidhi taparia Best Answer
Okay this is entirely a trick question I believe. When firms are selling out of inventory, investment expenditure will definitely get reduced because of the negative change in stocks. But on the other hand, the product they're selling is being bought by customers and this raises consumption expenditure. So ultimately GDP shouldn't be affected at all. But am not 100% sure. I'll get back about this question in a day or two.