In an economy, the value of inventories fell by $50 billion from Year 1 to Year 2. In calculating total investment for Year 2, national income accountants would increase it by $50 billion. (A) True (B) False

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Davis

Business

15 August, 00:31

In an economy, the value of inventories fell by $50 billion from Year 1 to Year 2. In calculating total investment for Year 2, national income accountants would increase it by $50 billion. (A) True (B) False

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Cailyn Bolton · Answer 1

The correct answer is False.

Explanation:

For a given amount of investment in the economy, one part serves to replenish or replace the capital spent and another to increase capital assets. The total level of investment is designated as gross investment, and net investment is only the part that serves to increase the amount of capital goods.

The decline in inventories should not be considered, because it was a behavior from a previous period that does not influence the decisions of the following year.