The value of goods added to a firm’s inventory in a certain year is treated as

Updated on August 6, 2022

The value of goods added to a firm’s inventory in a certain year
is treated as

a. investment, since GDP aims to measure the value of the economy’s
production that year.
b. consumption, since the goods will be sold to consumers in
another period.
c. intermediate goods, and so is not included in that year’s
GDP.
d. spending on durable goods, since the goods could not be
inventoried unless they were durable.

Answer

Ans. The correct option is A.

Explanation:

The value of goods added to a firm’s inventory in a certain year
is Investment. It is so because the term investment in inventory
means that investment in the firm’s raw materials, work-in-progress
and finished stock. The final value of goods and services produced
within the economy is called as Gross Domestic Product (GDP).

Other options are incorrect because:

Consumption is somewhat related to the consumers as they are
ultimate users of the goods and services. As per the question, It
can not be regarded as consumption because consumption remains in
the hands of the consumers itself and not in the producers purview.
That why it is incorrect.

Intermediate goods are the goods used in the production of final
goods and services. It can also be regarded as part of the final
products. If we take intermediate goods as the answer, then we have
to count it in the GDP as per its definition. In other words,
inventory and intermediate goods can be taken as same but if we
take both these terms same, then it must be included at the time of
valuation of GDP but as per third option, it is given that it will
be not included in current year’s GDP.

Durable goods again remains in the consumers hand to be
purchased. Like consumption, durable goods are consumed by the
consumers as they are having durability to be used in the future.
For example – Dryer, Computer, etc. That’s why it is also
incorrect.