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:

Goodwill

An intangible asset that arises when a company acquires another company for a price higher than the fair value of its net assets, reflecting the value of its brand, customer base, and other non-tangible assets.

Acquisition

The process by which one company takes control over another company either by purchasing its shares, assets, or both.

Consolidated Balance Sheet

A balance sheet that represents the combined financial position of a parent company and its subsidiaries as if they were a single entity.

Book Value

The value of an asset according to its balance sheet account balance, taking into account the cost of the asset less any depreciation, amortization, or impairment costs.