A U. S. firm produces nail guns in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the nail guns to a U. S. construction company. In which quarter (s) does (do) these transactions raise investment

Question

Rory Cannon

Business

1 October, 19:59

A U. S. firm produces nail guns in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the nail guns to a U. S. construction company. In which quarter (s) does (do) these transactions raise investment

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Bridge · Answer 1

The nail guns will increase the investment component of the GDP during the first quarter. Once they were manufactured, they were placed in the merchandise inventory of the firm. The net effect on the economy is equal to the total production cost of the nail guns.

During the second quarter, the firm sold the nail guns to a construction company, therefore an adjustment must be made since the inventory component decreased (minus the production cost of the nail guns) and the consumption component increased by the amount of the sale.