I don't follow the net negative impact on GDP argument. Since the inventory
was produced, there is income (wages, materials, etc.) associated with the
inventory -- regardless of whether or not it sold. To maintain the
equivalence of income and GDP, it seems reasonable that unsold inventory be
regarded as inventory effectively purchased by the manufacturing firm at
cost.
--------------------------------------------
Antony Davies, Ph.D.
Assistant Professor of Finance and Economics
Duquesne University
Pittsburgh, PA 15282
412-396-6268
http://www.bus.duq.edu/faculty/davies
-----Original Message-----
From: owner-tch-econ@elon.edu [mailto:owner-tch-econ@elon.edu]On Behalf
Of Gervas Huxley
Sent: Thursday, February 07, 2002 9:11 AM
To: Bob Parks
Cc: marteenm@yahoo.com; tch-econ@elon.edu
Subject: Re: inventories and GDP
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Isn't the answer that GDP accounting is an approximation and that
inventories that never get sold - get lost (somehow!)
I.e. that GDP accounting figs won't take into account inventories that
are never sold.
Pure guess.
Gervas
On Thu, 7 Feb 2002 07:13:16 -0600 (CST) Bob
Parks <bparks@wueconc.wustl.edu> wrote:
> To reply to the sender of this message privately, use the reply function.
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> =========================================================================
>
> >
> >
> >I fielded a question on unsold goods and its effect on GDP. And after
> >explaining how unsold goods magically turn into an inventory and added to
> >GDP the student then asked, 'what if the good in never sold?' The student
> >was really asking about an inventory item that becomes completely
obsolete
> >and is, in essence, worthless. How is this number backed out of the GDP
> >accounts?
>
> Most inventories would be sold next period - that would be deducted
> from Net Inventories but added to Consumption in that next period,
> yielding a 0 net effect on GDP the next period.
>
> If the firm shows reduced inventories the next period, but no
> increase in sales due to that reduction, then there is a net
> negative effect on GDP (bec. nothing offset the reduction).
>
> A student might want to argue with that accounting principle,
> namely that GDP falls with inventory becoming useless, but that
> is the way we do the accounting.
>
> Bob
> >
> >Martin Medeiros
> >
> >
> >
> >
> >***ATTENTION***
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> ><P>I fielded a question on unsold goods and its effect on
GDP. And after explaining how unsold goods magically turn into an
inventory and added to GDP the student then asked, 'what if the good in
never sold?' The student was really asking about an inventory item
that becomes completely obsolete and is, in essence, worthless. How is
this number backed out of the GDP accounts?</P>
> ><P>Martin Medeiros</P>
> ><P> </P><BR><BR>***ATTENTION***<br>If you are having trouble sending
a reply to my Bigfoot account, try sending it to
marteenm@yahoo.com<p><br><hr size=1><b>Do You Yahoo!?</b><br>
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> >
>
>
> --
>
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----------------------
Gervas Huxley University of Bristol
----------------------------------------------------------
Department of Economics
Tel: +44 (0)117 9288263 8 Woodland Road
e-mail: Gervas.Huxley@bristol.ac.uk Bristol BS8 1TN
United Kingdom
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