Explain why we must take into account changes in business inventories when calculating GDP.

Question

Quizplus · Accepted Answer

The Answer is Changes in business inventories can be positive, negative, or zero. If they are positive, some goods produced in a given period were not purchased. Because GDP measures the value of the goods and services produced in a given period, we must take into account these goods that were produced but not sold. When the changes in business inventories are negative, some of the goods sold in a given period were produced in a previous period. For the same reason, we need to take this into account to obtain an accurate measure of economic activity for a GIVEN period.

Explain Why We Must Take into Account Changes in Business