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Chapter 21: Q3 (page 566)

鈥淪ince inventories can be costly to hold, firms鈥� planned inventory investment should be zero, and firms should acquire inventory only through unplanned inventory

accumulation.鈥� Is this statement true, false, or uncertain? Explain your answer

Short Answer

Expert verified

This statement is False

Step by step solution

01

Basic Concept 

Economy's desirable situation is when actual investment = planned investment.

This is ideal, as inventories level are appropriate as much as desired - neither more, nor less.

02

Explanation

So, firms tend to retain inventory according to planned inventory, in coordination with desired planned investment & with diligent cost consideration. They prefer planned inventory investment, rather than unplanned inventory accumulation.

Unplanned inventory investment is likely to be zero, or just little positive for contingencies & unforeseen events.

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