In 2023, an automobile company produced 800 cars, selling 750 to consumers. The remaining 50 unsold cars were added to its inventory. If the firm sells all 50 cars out of its inventory to consumers in early 2024, what impact will this have on the national income account figures in 2024? Select all correct statements. Note: This is a multiple-answer question; thus, more than one option may be correct. a. Investment does not change in 2024. b. GDP increases in 2024. c. GDP decreases in 2024. d. Consumption increases in 2024.
Question
In 2023, an automobile company produced 800 cars, selling 750 to consumers. The remaining 50 unsold cars were added to its inventory.
If the firm sells all 50 cars out of its inventory to consumers in early 2024, what impact will this have on the national income account figures in 2024?
Select all correct statements.
Note: This is a multiple-answer question; thus, more than one option may be correct.
a.
Investment does not change in 2024.
b.
GDP increases in 2024.
c.
GDP decreases in 2024.
d.
Consumption increases in 2024.
Solution
The correct statements are:
a. Investment does not change in 2024. b. GDP increases in 2024. d. Consumption increases in 2024.
Here's why:
a. Investment does not change in 2024: The cars were produced (and thus, counted as investment) in 2023, not 2024. Selling them from inventory does not count as investment.
b. GDP increases in 2024: GDP (Gross Domestic Product) measures the total value of final goods and services produced within a country in a given period. When the cars are sold, they become part of the GDP as they are now considered consumed goods.
d. Consumption increases in 2024: The cars, once sold, are considered consumed goods. Therefore, consumption increases.
Note: GDP does not decrease in 2024 (option c) because the cars were already produced in 2023, and selling them in 2024 does not reduce the total production of goods and services.
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