When computing GDP we make an adjustment whereby we add any

When computing GDP, we make an adjustment whereby we add any increase in inventories to the value of goods and services sold. Why do we make this inventory adjustment?

Solution

Change in inventory is added to GDP because we cannot distinguish between intermediate good and final good for inventory. Due to this the total value of inventory is taken under investment and subtracted the next year.

When computing GDP, we make an adjustment whereby we add any increase in inventories to the value of goods and services sold. Why do we make this inventory adju

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