A Firm Produces Consumer Goods and Adds Some to Inventory

question 35

Multiple Choice

A firm produces consumer goods and adds some to inventory in the third quarter. In the fourth quarter, the firm sells the goods at a retail outlet. As a result of these actions, what happens to the consumption and investment components of GDP in the fourth quarter?

• A) investment decreases, consumption does not change
• B) investment increases, consumption decreases
• C) investment decreases, consumption increases
• D) investment does not change, consumption increases

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Definitions:

Imports

Goods or services brought into a country from abroad for sale.

Variable Costs

Costs that change in proportion to the level of production or business activity, such as materials and labor.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance.

After-tax Profit

The net income remaining after all taxes have been deducted from total revenue.