Example of inventory investment- accounting system, Macroeconomics

Assignment Help:

 

 ACCOUNTING SYSTEM-EXAMPLE IV 

Now consider the economy as in example III. In the next year same outputs were produced and the same incomes were paid out. However, the households decided not to consume all the income but save some of it and stuff it under their mattresses. They bought extracts worth only Rs.5, chemicals worth Rs.20 and bottled jam worth Rs.300. The market value of all final sales to households is only Rs.325. The GNI is Rs.360 as before. Thus apparently GNP does not equal GNI. The problem is Rs.35 worth of goods which out of the Rs.360 worth produced have remained unsold. The three firms have to make an unplanned inventory investment (stocks of finished goods) of Rs.35. The accounts are as follows: 

                                       Production Account 

 

                          1258_Production Account13.png

                                     Household Account 

 

                          1923_Production Account13.png

                           Savings and Investment Account 

                         517_Production Account13.png

 

Now GNP equals the value of final sales plus net increase in stocks or net inventory investment.

GNP = C + I = 325 + 35 = 360

where C denotes consumption and I denotes investment (inventory). GNI is also 360.

Note that there is something missing in this example. There must be some way of making the savings of households available to the firms for financing the inventories. It could be direct lending from households to firms, or equivalently acceptance of promissory notes in lieu of wages and profits of Rs.35 or a financial institution which accepts deposits from households and lends to firms. But in the last case some new complications will be introduced. Do you see them? 

 

 

 

 


Related Discussions:- Example of inventory investment- accounting system

Model Questions Required, 1) Assume that the production function for New Ze...

1) Assume that the production function for New Zealand is given by Y = AK0.57L0.43, where Y is real GDP (in 2000 constant dollars), K is real capital stock, L is labour. The parame

Fixed versus floating exchange rates, Fixed versus floating exchange rates:...

Fixed versus floating exchange rates: To begin with, we will briefly review the balance of payments (BOP) table of a nation that you studied in the course on international eco

Notion of the hidden momentum of population growth, Explain the notion of t...

Explain the notion of the hidden momentum of population growth. Why is this an important concept for projecting future population trends in different developing nations?

What is total surplus in net gain, What is total surplus in net gain? T...

What is total surplus in net gain? Total surplus in net gain: The total surplus generated into a market is the total net gain to consumers and producers through trading into

Indian economic, What can be the topic to make assignment on indian macro e...

What can be the topic to make assignment on indian macro economics

Gdp, explain the structure of the economy and its impact on the gdp of soun...

explain the structure of the economy and its impact on the gdp of sountry.

Democracy survive if a majority of the citizen, Can democracy survive if a ...

Can democracy survive if a majority of the citizen pays little or nothing in taxes while benefiting directly from a higher level of government spending? Why or why not?

Testing the hypothesis, An effort to reduce energy costs, a major universit...

An effort to reduce energy costs, a major university has installed more efficient lights as well as automatic sensors that turn the lights off when no movement is present in a room

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd