In Year 1, inventories rose by $25 billion.In Year 2, inventories fell by $20 billion.In calculating total investment, national income accountants would have:
A)decreased it by $25 billion in Year 1 and increased it by $20 billion in Year 2.
B)decreased it by $25 billion in Year 1 and increased it by $5 billion in Year 2.
C)increased it by $25 billion in Year 1 and decreased it by $5 billion in Year 2.
D)increased it by $25 billion in Year 1 and decreased it by $20 billion in Year 2.

Question

Quizplus · Accepted Answer

National income accountants include changes in inventories as a component of investment. Therefore, the correct calculation for total investment would be to add the increase in inventories in Year 1 and subtract the decrease in inventories in Year 2.

This would result in an increase of $25 billion in Year 1 and a decrease of $20 billion in Year 2, leading to a net increase of $5 billion over the two years. Therefore, the correct choice is D, which states an increase in Year 1 and a decrease in Year 2.

In Year 1, Inventories Rose by $25 Billion