During the third quarter of this year a firm produces consumer goods and adds some of those goods to its inventory. During the fourth quarter of this year, the firm sells the goods at a retail outlet, with the result that the value of its inventory at the end of the fourth quarter is smaller than the value of its inventory at the end of the third quarter. These actions affect which components) of fourth-quarter GDP?

Question

Quizplus · Accepted Answer

When the firm sells goods from its inventory, consumption increases as these goods are purchased by consumers. However, since the inventory decreases, investment decreases because inventory is considered part of investment in GDP calculations.

During the Third Quarter of This Year a Firm Produces