Macroeconomics, 2nd Edition by Pearson

8

MACROECONOMICS

We now need to think about the estimation of aggregate output when

the baker does not sell all the bread during the accounting period, or he

does not use up all the wheat purchased from the farmer in that period.

The unused wheat and unsold bread is not used up and so cannot be

deemed to be intermediate goods. Rather, they are both deemed to be

inventories that are classified as final goods and counted as part of output

(see Figure 1.1). The accounting is done by classifying the change in the

value of an economic unit’s inventory from one year to the next as a final

good called the

INVENTORY

INVESTMENT

. If the baker ...