Inventory Change and Investment Quiz
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Questions and Answers

What term is used for the addition to the stock of capital of a firm?

  • Intermediate goods
  • Investment (correct)
  • Fixed business investment
  • Value added
  • In economics, what is the rise in the value of a firm's inventories treated as?

  • Value added
  • Investment expenditure (correct)
  • Intermediate goods
  • Fixed business investment
  • What category of investment refers to the addition of housing facilities?

  • Residential investment (correct)
  • Unplanned accumulation
  • Investment expenditure
  • Fixed business investment
  • What happens when there is an unexpected fall in sales according to the text?

    <p>Unplanned accumulation of inventories</p> Signup and view all the answers

    How is the change in inventories treated in economics when sales are unexpectedly low?

    <p>Unplanned accumulation of inventories</p> Signup and view all the answers

    Which term is used for the addition to the machinery, factory buildings, and equipment employed by firms?

    <p>Fixed business investment</p> Signup and view all the answers

    What does the sign '≡' signify in the context of the text?

    <p>An identity that always holds true</p> Signup and view all the answers

    How is an identity different from an equality in mathematics?

    <p>An identity always holds true, while an equality holds true only for specific conditions</p> Signup and view all the answers

    In the context of inventory accounting, what does the change of inventories during a year represent?

    <p>Value added plus intermediate goods used by the firm minus sale of the firm during the year</p> Signup and view all the answers

    If a firm starts a year with inventories worth $500, produces goods worth $1,200, and sells goods worth $900 during the year, what is the change in inventories?

    <p>$300</p> Signup and view all the answers

    Which term represents goods that are used up during the production process in the context of inventory accounting?

    <p>Intermediate goods</p> Signup and view all the answers

    What is an example of an unplanned accumulation of inventories?

    <p>Sales less than 1,000 units</p> Signup and view all the answers

    Why must we calculate the change of inventories using '≡' instead of '=' as per the text's explanation?

    <p>To emphasize that it is an accounting identity</p> Signup and view all the answers

    In the context of inventory levels, what would be an example of planned accumulation?

    <p>Matching production with expected sales</p> Signup and view all the answers

    What is an instance of planned decumulation of inventories?

    <p>Reducing inventory levels as planned</p> Signup and view all the answers

    How is unplanned decumulation of inventories described?

    <p>Unexpected reduction in inventory levels</p> Signup and view all the answers

    What could lead to planned accumulation of inventories in a firm?

    <p>Increasing production beyond expected sales</p> Signup and view all the answers

    If a firm wants to reduce its inventory levels from 100 to 25 shirts, what would be an example of planned action?

    <p>Producing 925 shirts with 75 sold out of the inventory</p> Signup and view all the answers

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