Suppose an economy is booming: unemployment is low, wage rates increased, and more households have disposable income and hire purchasing power.This causes an increase in demand but due to the increase business have less money for production causing a dispensary between the high level of demand and the lower level of output.
State any one reason behind the above scenerio.
Answers
Answer:
The sum of final expenditures in an economy must be equal to the income received by all the factors of production taken together (final spending on final goods, it does not include spending on intermediate goods). This follows from the simple idea that the revenues earned by all the firms put together must be distributed among the factors of production as salaries, wages, profits, interests earning and rents. Planned Inventory. It refers to changes in the stock inventories that have occurred in a planned way. In a situation of planned inventory accumulation, firm will plan to raise its inventories. Unplanned Inventory. It refers to changes in the stock of inventories that have occurred in an unexpected way. In a situation of unplanned inventory accumulation, due to unexpected fall in sales, the firm will have unsold stock of goods.
Value added of a firm (GVA) = Gross value of output produced by the firm – Value of intermediate goods used by the firm.
OR
GVA = Value of sales by the firm + Value of change in inventories – Value of intermediate goods used by the firm