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Gross Domestic Product: Difference between revisions
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== Components Definitions == | |||
=== Change in Private Inventories === | |||
Methodology: https://www.bea.gov/system/files/2019-12/Chapter-7.pdf | |||
Change in private inventories (CIPI), or inventory investment, is a measure of the value of the change in the physical volume of the inventories—additions less withdrawals—that businesses maintain to support their production and distribution activities. Inventory investment is one of the most volatile components of gross domestic product (GDP), giving it an important role in short run variations in GDP growth. Moreover, inventory movement plays a key role in the timing, duration, and magnitude of business cycles, as unanticipated buildups in inventories may signal future cutbacks in production, and unanticipated shortages in inventories may signal future pickups in production. | |||
The CIPI estimates are the building blocks for BEA’s estimates of inventory stocks. These stock estimates, coupled with BEA’s estimates of final sales, form inventory-sales ratios that can be used to assess the likelihood that businesses will add to, or reduce, inventories in response to changes in demand.CIPI is the NIPA measure of the flow (or change) in the stock of inventories held by private business over a specified period. 1 The stock of inventories is the value of the goods owned by private business at the end of a specified period, whether the goods were produced or acquired in that period or in previous periods. | |||
In measuring the level of GDP, the change in, not the level of, inventories provides the appropriate measure of the flow of economic activity that is consistent with that measured by the other GDP components. A positive CIPI indicates that total production (GDP) exceeded the sum of the final sales components of GDP in the current period and that the excess production was added to inventories. A negative CIPI indicates that final sales exceeded production in the current period and that the excess sales were filled by drawing down inventories. CIPI is valued in the average prices for the period because units move in and out of inventories continuously over the course of the period. | |||
== Developments Real GDP == | == Developments Real GDP == | ||
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