If car companies produce a lot of cars this year but hold the new models back in warehouses until they release them in the new-model year will this year's GDP be higher, lower, or the same as it would have been if they sold the cars right away? Why?
Does the choice to reserve the cars for a year change what category of expenditures they fall under?
Gross Private Domestic Investment:
Gross Private Domestic Investment (GPDI), or simply known as Investment Spending, is one of the major components of an economy's Gross Domestic Product (GDP). This is made up of the following:
1. Businesses' investment on new factories, machineries/equipment: If a firm sets up a new factory, or buys a new packaging machine, this is counted as part of the economy's GPDI for the year.
2. New residential construction projects: When an economy is building new homes, GPDI increases.
3. Change in businesses' inventories: When businesses produce more finished goods and keep them in stockrooms or warehouses at present to be sold in the future, GDPI increases.
Answer and Explanation: 1
Question #1: If car companies produce a lot of cars this year but hold the new models back in warehouses until they release them in the new-model year...
See full answer below.
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
fromChapter 24 / Lesson 13
In this lesson, you will define the concept of gross private domestic investment (GPDI), list the factors that are used to determine it, and learn to calculate it using a simple formula.