Which of the following results from ﬁrms holding inventories?
A) The economy is much more susceptible to business cycle ﬂuctuations.
B) Demand shocks occur with greater frequency.
C) Demand shocks occur less frequently.
D) Firms can maintain production levels and adjust inventories in response to demand shocks.

Question

Quizplus · Accepted Answer

Holding inventories allows firms to maintain production levels even in the face of demand shocks. This means they can adjust their inventories to meet changes in demand rather than having to constantly adjust production levels which may create instability in the economy. Additionally, inventories serve as a buffer against supply chain disruptions which can help to stabilize the economy. Therefore, the correct answer is D.

Which of the Following Results from ﬁRms Holding Inventories