A Major Reason Why Inventories Are So Strongly Correlated with GDP

question 11

Multiple Choice

A major reason why inventories are so strongly correlated with GDP is that

• A) the larger fraction of inventory holdings are in material inputs, which are bid down when GDP grows quickly and expand when GDP grows slowly.
• B) the larger fraction of inventory holdings are in material inputs, which are bid up or down) in anticipation of strong or weak) growth in GDP and thereby cause a self-fulfilling stimulus or depressant).
• C) their holdings are so strongly correlated with other, interest-insensitive forms of investment.
• D) b and c.
• E) none of the above.

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Definitions:

Say's Law

A principle attributed to French economist Jean-Baptiste Say, suggesting that supply creates its own demand, meaning production inherently generates the demand for goods and services.

Consumption

The action or process of using goods and services for personal needs or desires, typically considered as a component of GDP.

Keynes

Refers to John Maynard Keynes, a British economist whose theories on government economic intervention to mitigate the adverse effects of recessions and depressions significantly influenced modern macroeconomics.

Aggregate Demand

The entire market demand for goods and services in an economic setting, priced collectively at a given level during a specified period.