During the Third Quarter of This Year a Firm Produces

question 23

Multiple Choice

During the third quarter of this year a firm produces consumer goods and adds some of those goods to its inventory. During the fourth quarter of this year, the firm sells the goods at a retail outlet, with the result that the value of its inventory at the end of the fourth quarter is smaller than the value of its inventory at the end of the third quarter. These actions affect which components) of fourth-quarter GDP?

• A) they increase consumption and have no effect on investment
• B) they increase consumption and decrease investment
• C) they have no effect on either consumption or investment
• D) they have no effect on consumption and decrease investment

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Definitions:

Invisible Hand Principle

The tendency of market prices to direct individuals pursuing their own interests to engage in activities promoting the economic well-being of society.

Price-Taker Markets

Markets in which individual buyers or sellers have no influence over the price of a product, typically due to the product being a commodity with many competitors.

Low Entry Barriers

Conditions that make it easy for new competitors to enter a market, including minimal financial, regulatory, or technological requirements.

Homogeneous Product

A product that is identical in all aspects from all producers, making it indistinguishable among suppliers.