A major reason why inventories are so strongly correlated with GDP is that
A) the larger fraction of inventory holdings are in material inputs, which are bid down when GDP grows quickly and expand when GDP grows slowly.
B) the larger fraction of inventory holdings are in material inputs, which are bid up or down) in anticipation of strong or weak) growth in GDP and thereby cause a self-fulfilling stimulus or depressant).
C) their holdings are so strongly correlated with other, interest-insensitive forms of investment.
D) b and c.
E) none of the above.

Question

Quizplus · Accepted Answer

Inventories are often adjusted based on anticipated GDP growth, leading to a self-fulfilling cycle where expectations of growth or slowdown influence inventory levels, which in turn affect GDP.

A Major Reason Why Inventories Are So Strongly Correlated with GDP