How Are Inventories Included in the Calculation of the Expenditure

question 107

Multiple Choice

How are inventories included in the calculation of the expenditure measure of GDP?

• A) They are not included until they are purchased by a consumer.
• B) They are counted as soon as they are produced.
• C) They are counted as being purchased and owned by the firm if they are not sold to a consumer.
• D) The value of the inputs to create the inventory is used until the inventories are purchased.

---

Definitions:

Monotonic Transformation

A monotonic transformation involves a function that either entirely increases or decreases, preserving the order of the original function’s elements.

Cobb-Douglas Preferences

A utility function used in economics to represent preferences of consumers, characterized by goods being perfect substitutes or complements to some degree.

Utility Function

An expression used in economics to quantify the happiness or satisfaction gained from consuming a set of goods or services.

Consumption Bundle

A combination of different goods and services that a consumer chooses to purchase at a given time.