18 Questions
What term is used for the addition to the stock of capital of a firm?
Investment
In economics, what is the rise in the value of a firm's inventories treated as?
Investment expenditure
What category of investment refers to the addition of housing facilities?
Residential investment
What happens when there is an unexpected fall in sales according to the text?
Unplanned accumulation of inventories
How is the change in inventories treated in economics when sales are unexpectedly low?
Unplanned accumulation of inventories
Which term is used for the addition to the machinery, factory buildings, and equipment employed by firms?
Fixed business investment
What does the sign '≡' signify in the context of the text?
An identity that always holds true
How is an identity different from an equality in mathematics?
An identity always holds true, while an equality holds true only for specific conditions
In the context of inventory accounting, what does the change of inventories during a year represent?
Value added plus intermediate goods used by the firm minus sale of the firm during the year
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?
$300
Which term represents goods that are used up during the production process in the context of inventory accounting?
Intermediate goods
What is an example of an unplanned accumulation of inventories?
Sales less than 1,000 units
Why must we calculate the change of inventories using '≡' instead of '=' as per the text's explanation?
To emphasize that it is an accounting identity
In the context of inventory levels, what would be an example of planned accumulation?
Matching production with expected sales
What is an instance of planned decumulation of inventories?
Reducing inventory levels as planned
How is unplanned decumulation of inventories described?
Unexpected reduction in inventory levels
What could lead to planned accumulation of inventories in a firm?
Increasing production beyond expected sales
If a firm wants to reduce its inventory levels from 100 to 25 shirts, what would be an example of planned action?
Producing 925 shirts with 75 sold out of the inventory
Test your understanding of how inventory change is considered as investment in economics. Learn about the different categories of investment and their implications for firms.
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