Question

A manufacturer produces 500,000 MP3 players in the first quarter of the year. It sells 400,000 of them and adds 100,000 of them to inventory. All the players added to inventory are purchased by consumers in the second quarter. How are the 100,000 that go into inventory counted in GDP?

Answer 1

Answer:

$100,000 is accounted in first quarter GDP as change in inventory

Explanation:

Changes in inventory is accounted in the current period GDP as it is an investment. It is a part of gross private investment of GDP. Changes in inventory happens when closing inventory differs from opening inventory.

When sales are more than goods produced, it indicates that the company has purchased its own inventory for investment purpose.

In this case $100,000 inventory in quarter 1 would be included in quarter 1 GDP as part of private investment.