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


1 Answer 1


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.

  • $\begingroup$ 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
    Commented Feb 26, 2021 at 19:16

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