When a firm produces consumer goods and adds some to inventory rather than selling them, how is the increase in inventory counted in GDP?
A) It is counted in the current quarter GDP as capital consumption allowance.
B) It is counted in the current quarter GDP as investment.
C) It is counted in the current quarter GDP as consumption.
D) It is counted in the current quarter GDP as a statistical discrepancy.

Question

Quizplus · Accepted Answer

When a firm adds unsold consumer goods to inventory, it is counted as investment because the goods have been produced but not yet sold, so they are seen as contributing to the firm's capital stock. Therefore, the increase in inventory is added to the investment component of GDP.

When a Firm Produces Consumer Goods and Adds Some to Inventory