Describe the role of business inventory change in determining the equilibrium level of GDP and changes in the level of GDP.
What will be an ideal response?
Inventories work as buffers in the economy, absorbing changes in demand. A change in inventory levels indicates the relation between total spending and total production. Business managers usually have a desired level of inventories in mind and watch inventory levels carefully to determine whether orders and production should be changed. If inventories are rising in an undesired fashion, this means that sales are not keeping up with production and, therefore, production should be cut back. If inventories are falling, this means production is not keeping up with sales and, if sales are to continue, orders and production must be increased to keep pace with sales. Equilibrium output (GDP) will be that level of output where the level of desired inventories is being maintained with no unwanted increases or decreases.
You might also like to view...
What type of relationship do business taxes have with respect to Investment spending?
A. Negative B. Positive C. Secondary D. Constant
A first public policy step against discrimination in the labor market is to make it illegal. For instance, laws against discrimination have reduced the wage gap between:
a. ages. b. genders. c. education levels. d. classes.
When indifference curves are bowed in toward the origin,
a. consumers are less inclined to trade away goods they are lacking. b. consumers' willingness to trade away goods they have in abundance diminishes. c. an increase in income will shift the indifference curve away from the origin. d. a decrease in income will shift the indifference curve toward the origin.
A government policy of providing free public education is an example of a policy to promote economic growth by:
A. increasing the availability of natural resources. B. increasing physical capital. C. improving technology. D. increasing human capital.