Question

Changes in Inventory Investment

            When real GDP increased in the first quarter of 2015, personal consumption expenditure, private inventory investment, and imports increased while exports, nonresidential fixed investment, and government spending decreased.

Source: Bureau of Economic Analysis, April 29, 2015

            Explain how the increase in private inventory investment affected U.S. aggregate demand.

Answer 1

inventory investment is a component of gross domestic product.what is produced in a certain country is naturally also sold eventually, but some of the goods produced in a given year may be sold in a later year rather than in the year they were produced. conversely, some of the goods sold in a given year might have been produced in an earlier year. so the difference between goods produced and goods sold in a given year is called inventory investment.so there would be an excess stock of goods which has been produced in the previous years in u.s and it led to a decline in u.s aggregate demand.it means total spending on goods and services at a given price in a given time period