A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely

Question

a. decreased.
b. may have increased, decreased, or stayed the same.
c. stayed the same.
d. increased.

Answer 1

The correct answer is b. may have increased, decreased, or stayed the same.

Here's the reasoning:

• If businesses reduced production but sold from their inventories, it indicates that they are drawing down existing stock rather than producing new goods.
• As GDP measures production, a reduction in production might lead to a decrease in GDP.
• However, the sales from inventories might have been sufficient to offset the reduced production, potentially stabilizing or even increasing GDP depending on the scale of sales and the extent of reduction in production.
• Thus, it's unclear without additional information whether GDP increased, decreased, or remained the same.