Question

Ford produces 100,000 cars this year and only sells 95,000. The remaining 5,000 cars that have been placed into inventory storage are listed in which category of GDP?

A) Consumption
B) Investment
C) Government spending
D) Net exports

Answer 1

The unsold cars produced by Ford and stored in inventory would be categorized under (option B) 'Business investment' in the GDP calculations, as they represent future economic benefit.

Step-by-step explanation:

The cars that are produced by Ford, but not sold within the same year and are placed into inventory, would fall into the Business investment category of GDP.

Goods that are produced and enter into inventory are considered investments because they are expected to generate economic benefits for the company in the future.

This includes increases in inventory, which are counted as part of the business investments that contribute to the Gross Domestic Product (GDP).

Therefore, the unsold cars would not be part of Consumption, which involves goods and services that are currently consumed; nor Government spending, which refers to spending by the government sector; and not Net exports, which involve the value of exports minus imports.