01 If inventory quantity falls but the price per unit rises what determines the sign of nominal inventory investment?
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Answer and explanation
Correct answer: A. On the combined change in current value from quantity and price
Explanation: Nominal inventory investment is the change in the monetary value of inventories measured at current prices. A fall in physical quantity tends to reduce inventory value, while a rise in the price per unit tends to increase it. The final sign depends on which effect is larger: compare beginning value with ending value, or compare the products of quantity and current price. The base year, population and wage rate alone cannot determine this sign. Therefore A is correct.