<p>Scenario “C” does not specify “unexpected.” Since greater growth was expected, planned inventory investment would rise to meet higher expected demand.</p>

CC BY-SA 4.0
2020-05-23T13:01:36.720Z
2020-05-23T13:01:36.720Z
Brian Romanchuk
<p>I will focus on the event "c":
<a href="https://i.sstatic.net/adAOX.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/adAOX.png" alt="enter image description here"></a></p>

<p>The answer for "c" is following:</p>

<blockquote>
  <p>A sharp increase in the rate of real GDP growth leads to
  a higher level of planned investment spending by producers, according to the accelerator principle, as they increase production capacity to meet higher demand.</p>
</blockquote>

<p>I agree with the answer, but it seems to be incomplete. It was already established that growing negative change in unplanned inventory investment is a sign of a booming economy:</p>

<blockquote>
  <p>In fact, economists who study
  macroeconomic variables in an attempt to determine the future path of the economy pay careful attention to changes in inventory levels. Rising inventories typically indicate positive unplanned inventory investment and a slowing economy, as sales are less than had been forecast. Falling inventories typically indicate negative unplanned inventory investment and a growing economy, as sales are greater than forecast.</p>
</blockquote>

<p>So it would seem to be logical to expect that "A sharp increase in the economy's growth rate of real GDP" will cause increased negative unplanned inventory investments, AKA decreased inventory stocks. Does the answer omit this part without a good reason or do I misunderstand/miss something?</p>

<macroeconomics><gdp><investment>
Why does the answer not include increased negative unplanned stock investment?
KarmaPeasant
# Why does the answer not include increased negative unplanned stock investment?

(Asked by: username_0 on 2020-05-23)

I will focus on the event "c":
[![enter image description here](https://i.sstatic.net/adAOX.png)](https://i.sstatic.net/adAOX.png)

The answer for "c" is following:

> A sharp increase in the rate of real GDP growth leads to
> a higher level of planned investment spending by producers, according to the accelerator principle, as they increase production capacity to meet higher demand.

I agree with the answer, but it seems to be incomplete. It was already established that growing negative change in unplanned inventory investment is a sign of a booming economy:

> In fact, economists who study
> macroeconomic variables in an attempt to determine the future path of the economy pay careful attention to changes in inventory levels. Rising inventories typically indicate positive unplanned inventory investment and a slowing economy, as sales are less than had been forecast. Falling inventories typically indicate negative unplanned inventory investment and a growing economy, as sales are greater than forecast.

So it would seem to be logical to expect that "A sharp increase in the economy's growth rate of real GDP" will cause increased negative unplanned inventory investments, AKA decreased inventory stocks. Does the answer omit this part without a good reason or do I misunderstand/miss something?

**Tags:** macroeconomics, gdp, investment

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## 1 answers

### Answer by username_1 on 2020-05-23. Score: 4 | Accepted answer

Scenario “C” does not specify “unexpected.” Since greater growth was expected, planned inventory investment would rise to meet higher expected demand.


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