If an increase in stock is not included, what problem will arise in measuring current production?
Answer and explanation
Correct answer: The value of output will be underestimated
An increase in stock means that some goods produced during the current period remain unsold at the end of that period. These goods are still part of current production, even though they have not yet generated sales revenue. If the increase in inventory is omitted, current output will be recorded below its true value; therefore, output is underestimated.
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What is the correct answer to this question?
The value of output will be underestimated
Why is this the correct answer?
An increase in stock means that some goods produced during the current period remain unsold at the end of that period. These goods are still part of current production, even though they have not yet generated sales revenue. If the increase in inventory is omitted, current output will be recorded below its true value; therefore, output is underestimated.
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: Methods of calculating national income - Value Added/Product Method.
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