In one year,a firm increases its production by $9 million and increases sales by $8 million.All other things in the economy remaining the same,which of the following is true?
A)GDP increases by $8 million and inventory investment decreases by $1 million.
B)GDP increases by $9 million and inventory investment increases by $1 million.
C)Inventory investment decreases by $1 million.
D)GDP increases by $8 million and investment increases by $1 million.
E)GDP increases by $17 million.

Question

Quizplus · Accepted Answer

GDP is the total value of all goods and services produced in a country in a given time period. In this case, since the firm increased its production by $9 million, this will directly contribute to an increase in GDP. Additionally, since the firm increased its sales by $8 million, this also implies that the firm's inventory decreased by $1 million (assuming they didn't produce more than they sold). Since inventory investment is a component of GDP, a decrease in inventory investment will offset the increase in production to some extent. However, the net effect will still be an increase in GDP, and the increase in inventory investment by $1 million will further contribute to this increase. Therefore, option B is the correct answer.

In One Year,a Firm Increases Its Production by $9 Million