What does the investment component of GDP measure? a. spending on domestically produced goods by foreign buyers b. spending by h
ouseholds on goods and services c. spending on goods to be used in future production d. spending by government agencies on goods and services A good produced in the current time period but put into a firm's inventory instead of being sold a. is excluded from current GDP. b. is considered unsold inventory and counted as a part of investment in current GDP. c. is counted as consumption in current GDP since it was produced in the current time period. d. is only included as a part of consumption in future GDP when it is sold.
1) The correct answer is letter "C": spending on goods to be used in future production.
2) The correct answer is letter "B": is considered unsold inventory and counted as a part of investment in current GDP.
Explanation:
1) The Gross Domestic Product (GDP) considers four (4) components: <em>Consumption, Investment, Government, </em>and <em>Net Exports</em> (exports-imports). Investments refer to all goods that are purchased to produce other goods in the future. Final goods to be used or to replace others do not fall into this category.
2) The output of a company is computed within the GDP. Even if the output is not sold after production but it is recorded as part of an organization's inventory, it will be considered in the calculation of the GDP of the year when the production of the good took place.
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The revenue that the investment in the company would increase by $100,000.
Explanation:
Though the International Accounting Standard IAS 2 Inventories says that the inventory must be recorded at lower of:
Cost
Net Realizable Value (Fair Value less Cost to Sell)
This means though the Net realizable value increases but the cost remains the lower. This means their must not be any changes made to inventory account.
The profit earned from the increase in inventory value will be reflected in the income which will increase the net worth of the investment. So the increase in investment revenue would be by $100,000.
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