Imagine that at the close of business on December 31, 2015 a grocer has 10 loave
ID: 1126966 • Letter: I
Question
Imagine that at the close of business on December 31, 2015 a grocer has 10 loaves of bread, each valued at the wholesale baker's price of $.80. At the close of business on March 31, 2016, the grocer has 15 loaves of bread on the shelves. (a) What is the implication of these numbers for the contributiorn of the grocer's inventories to GDP in the first quarter of 2016? (b) How would your answer for point (a) change, if on March 31 2016, the grocer has 3 loaves of bread on the shelves. Make a common conclusion about when inventory investment is (i) positive, (ii) negative, Explain the difference between gross investment, replacement investment, and net investment. Which component of investment cannot be gross but only net? Explain why. What is the role of net investment in the economy? Explain and show on the PPF graph. (iii) zero. v. Why the investment component of GDP in the system of national accounts is called gross private domestic investment? Explain each word in this termExplanation / Answer
Net Investment
It is estimated by subtracting capital depreciation from gross investment.
Net investment = gross investment – depreciation
It helps in providing a sense that how much money is being spent on capital items taking into considerations the losses like maintenance, wear and tear, etc. Thus, it helps in expanding operations and improving efficiency.
On neglecting the depreciations one may have to face ad-hoc situations related to obsolete or worn out devices.
The changes to the capital stock.
Generally, considered to be a better indicator than gross investment.
Gross investment
The total amount spent on purchasing new assets.
Gross Investment = a total purchase or construction of new capital goods.
Helps in determining the total expenditure on capital goods.
All new investment –
Changes in inventories.
Not considered to be a better indicator in comparison to net investment.
Replacement Investment
The investment that is undertaken to replace a firm's plant and equipmentwhich has become worn out or obsolete.
There are four components of GDP , now why the investment component is called gross private domestic because
a. Net private domestic investment is the part of gross investment that adds to the existing stock of structures and equipment.
b. The consumption of fixed capital consists of depreciation and an allowance for accidental damage to the nation's structures and equipment.
4. If net private domestic investment is negative, the nation's capital stock, and hence the nation's productive capacity decreases.
The ans to the a and b parts are as follows
GDP measures the monetary value of final goods and services—that is, those that are bought by the final user—produced in a country in a given period of time (say a quarter or a year). ... An alternative concept, gross national product, or GNP, counts all the output of the residents of a country.
according to this statement as the number of breads increased it would pose a positive impact on the gdp as it would increase (10 to 15 ) but if the bread loafs decrease then it would pose a negative impact on gdp.
1. Gross private domestic investment is the purchase of equipment by firms, the purchase of all newly produced structures, and changes in business inventories. 2. Gross private domestic investment consists of net private domestic investment and the consumption of fixed capital.a. Net private domestic investment is the part of gross investment that adds to the existing stock of structures and equipment.
b. The consumption of fixed capital consists of depreciation and an allowance for accidental damage to the nation's structures and equipment.
3. If net private domestic investment is positive, then the nation's capital stock, and hence the nation's productive capacity increases.4. If net private domestic investment is negative, the nation's capital stock, and hence the nation's productive capacity decreases.
The ans to the a and b parts are as follows
GDP measures the monetary value of final goods and services—that is, those that are bought by the final user—produced in a country in a given period of time (say a quarter or a year). ... An alternative concept, gross national product, or GNP, counts all the output of the residents of a country.
according to this statement as the number of breads increased it would pose a positive impact on the gdp as it would increase (10 to 15 ) but if the bread loafs decrease then it would pose a negative impact on gdp.