Chapter 11, Problem 8P

To determine

Concept Introduction:

Investment Spending: All those spending which are done on physical capital which means that the expenses incurred increases level of physical capital in the economy is known as investment spending. There are two types of investment spending planned and unplanned.

Planned Investments: All those investments that businesses intend to take in given time. It is not certain rather properly thought of.

Unplanned Investment: All those investments that businesses do not intend to take in given time. It is certain due to some external factors like fall in interest rate and increase in future profitability.

Inventory: All those goods that are kept for sale at the time of emergency. They are unsold items.

Inventory Investment: It is the value of variation in total inventories which are kept in the economy for a given interval of time. They are of two types planned and unplanned inventory investment.

Unplanned Inventory Investment: When the real sales are greater or lesser than the amount of sales which are estimated by the firm. Then it leads to unplanned inventory investment.