Question

Actual investment equals to the sum of planned investment and a change in inventory investment. If Inventory investment is higher than firms planned,

A. actual and planned investment are equal.
B. actual investment is less than planned investment.
C. actual investment must be negative.
D. actual investment is greater than planned investment.

Answer 1

Actual investment equals the sum of planned investment and a change in inventory investment. If inventory investment is higher than the firm's planned investment, the actual investment will be greater than the planned investment.

Step-by-step explanation:

Investment as a Function of National Income

Actual investment equals the sum of planned investment and a change in inventory investment. If inventory investment is higher than the firm's planned investment, the actual investment will be greater than the planned investment. This is because the change in inventory investment adds to the overall investment expenditure. Therefore, the correct answer is option D: actual investment is greater than planned investment.

For example, suppose a firm planned to invest $100, but due to unexpected sales, their inventory investment increased by $50. In this case, the actual investment would be $150, which is higher than the planned investment.