EC140 Chapter Notes - Chapter 20: Fixed Investment, Canada Pension Plan, Northern Ireland Environment Agency
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EC140 Full Course Notes
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Inventories: firms hold stocks of their inputs and outputs. Inventories of inputs and unfinished materials allow firms to maintain a steady stream of production despite interruptions in the deliveries of inputs bought from other firms. Inventories of outputs allow firms to meet orders despite fluctuations in rate of production. Accumulation of inventories counts as positive investment for that year because it represents goods produced but not used for consumption currently. Decumulation: drawing down of inventories, disinvestment, represents reduction in the stock of finished goods available to be sold: new plant and equipment. (cid:272)apital sto(cid:272)k: e(cid:272)o(cid:374)o(cid:373)(cid:455)"s total (cid:395)ua(cid:374)tit(cid:455) of (cid:272)apital goods. Creating new capital goods is an act of investment and is called business fixed investment (fixed investment: new residential housing. The building of a new house is counted as investment expenditure rather than consumption expenditure. When individual purchases an existing house, the ownership is transferred and the transaction is not part of national income.