In 2023, an automobile company produced 800 cars, seling 750 to consumers. The remaining 50 unsold cars were added to its inventory.Ifthe firm sels all 50 cars out of its inventory to consumers in eary 2024 what impact willthis have on the national income account figures in 2024?Select all correct statements.Note: This is a multiple-answer question: thus, more than one option may be correct a. GDP does not change in 2024. b.Consumption increases in 2024. c.Investment does not change in 2024 d.GDP decreases in 2024.
Question
In 2023, an automobile company produced 800 cars, seling 750 to consumers. The remaining 50 unsold cars were added to its inventory.Ifthe firm sels all 50 cars out of its inventory to consumers in eary 2024 what impact willthis have on the national income account figures in 2024?Select all correct statements.Note: This is a multiple-answer question: thus, more than one option may be correct a. GDP does not change in 2024. b.Consumption increases in 2024. c.Investment does not change in 2024 d.GDP decreases in 2024.
Solution
The correct answers are:
a. GDP does not change in 2024. b. Consumption increases in 2024.
Explanation:
a. GDP does not change in 2024 because the cars were produced in 2023, and GDP measures the value of goods and services produced within a specific period. Therefore, selling the cars in 2024 does not affect the GDP of that year.
b. Consumption increases in 2024 because the cars are sold to consumers. Consumption is a component of GDP that measures the value of goods and services bought by households. Therefore, selling the cars increases consumption.
c. Investment does not change in 2024. This statement is incorrect because when the cars were not sold in 2023, they were considered as an investment (inventory investment). When they are sold in 2024, this reduces the inventory investment, hence investment changes.
d. GDP decreases in 2024. This statement is incorrect because the sale of the cars does not decrease the GDP. The cars were already counted in the GDP when they were produced in 2023. Selling them in 2024 only shifts them from one category of GDP (investment) to another (consumption).
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