Question Solved1 Answer Why are changes in inventories included as part of investment spending? Suppose inventories declined by $1 billion during 2008. How would this affect the size of gross private domestic investment and gross domestic product in 2008? Explain.

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Why are changes in inventories included as part of investment spending? Suppose inventories declined by $1 billion during 2008. How would this affect the size of gross private domestic investment and gross domestic product in 2008? Explain.

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Step 1GDP is a macroeconomic measure that is used to determine the total aggregate production in a country. It represents the market value of all the final goods and services that are produced within the boundaries of a country during a given time period. GDP can be computed using the expenditure method, where the value of different components such as consumption, investment, government spending, and net exports is calculated.Step 2Investment is the process of adding to the stock of capital assets with the expectation of getting a future income. An important sub-component of investment spending is the change in inventories. Inventories represent the producer’s stock of finished and in-process goods that were produced but not sold in the economy. They are a component of GDP and in ... See the full answer