1
$\begingroup$

Definitions across various resources state that GDP is the market vaue of all goods 'produced' in a certain time period. But while calculating GDP by expenditure method, consumers' spending is one of the components (GDP= consumer spending + Firm's investments + Government spending + net exports)

Suppose a manufacturer produced goods in Q1 and customers bought those goods in Q2 from an inventory, will Q1 GDP increase or Q2 increase due to this purchase?

Sorry for the rookie question

Improve this question
$\endgroup$
0

1 Answer 1

Reset to default
2
$\begingroup$

Goods produced.

In your example, a good is produced in Q1 but sold only in Q2. This adds to Q1 GDP (addition to inventories). For Q2 GDP, there's (i) a subtraction from inventories; and (ii) an addition to consumption—so (i) and (ii) cancel out and there's no net change to Q2 GDP.

Improve this answer
$\endgroup$
1
  • $\begingroup$ Good answer. Also (since we're discussing the expenditure approach) when inventories increase, we pretend that the firms' owners bought those increased inventories. So the identity "production=expenditure" still holds true. $\endgroup$
    – Daniel
    Feb 26, 2021 at 19:16

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.