Question

If a firm produces a good and then adds it to its inventory rather than selling it, for the purposes of GDP accounting the firm is considered to have "purchased" the good so it will count as part of that period’s investment expenditures. True or False

Answer 1

Answer:

The statement is true.

Explanation:

Investment expenditure refers to the expenses incurred on account of creating capital assets.

If a good is produced but is left unsold or not used in the production process, then, they result in increased inventory, which is considered as an investment by the firm.

For the purpose of GDP accounting, unsold goods in inventory are treated as purchased by the firm from itself. As such, they form a part of investment expenditure in the accounting period.