Four reasons for firms to hold inventories are given in the text. For each reason, indicate briefly whether and how it helps to explain the high volatility of inventory investment
What will be an ideal response?
The role of inventories as a factor of production and as work in process does not vary much in the short run. Inventories of finished goods that result from production smoothing and stock-out avoidance are a source of short-run volatility, because expected demand is procyclical. Optimistic expectations cause inventories to swell in anticipation of robust sales. When demand slumps, inventories grow even larger, until production is cut back. Then pessimistic forecasts imply inventory reduction, and inventories can fall precipitously as demand recovers, until production accelerates.
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A cartel usually has a collusive agreement to
A) restrict output. B) boost output. C) lower the price. D) increase the number of firms in the industry.
According to the World Bank’s system, countries in the slow growth club have a GDP growth of
a. 5% or more per year. b. 2% or less per year. c. 2% or more per year. d. 5% or less per year.
The graph shown demonstrates a tax on buyers. What is the amount of tax revenue being generated from the tax?
A. $48 B. $36 C. $72 D. $96
Exhibit 12-8 Negative income tax for a family
In Exhibit 12-8, consider a family that earns less than the break-even income level. For each $1 of earned income, this family's government payment will be reduced by:
A. $0.10. B. $0.25. C. $0.33. D. $0.50.