Which of the following statements are correct?
(A) Change in inventories of a firm during a year ≡ Production during the year − Sales during the year, and it always holds.
(B) Production of a firm ≡ Value added + Intermediate goods used by the firm.
(C) Change in inventories is a stock variable.
(D) A fall in the value of inventories over a year is called decumulation.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A), (B) and (D) only
Inventory is a stock; the change in inventories over a year is a flow.
(A) Change in inventories of a firm during a year ≡ Production during the year − Sales during the year, and it always holds. — True. It is an identity, so it always holds.
(B) Production of a firm ≡ Value added + Intermediate goods used by the firm. — True. Production = value added + intermediate goods used.
(C) Change in inventories is a stock variable. — False. Change in inventories takes place over a period, so it is a flow variable.
(D) A fall in the value of inventories over a year is called decumulation. — True. A fall in inventories over the year is decumulation.
NCERT (2026-27): “2.2.1 The Product or Value Added Method … If the value of inventories is less at the end of the year compared to the beginning of the year, inventories have decreased (decumulated). We can therefore infer that the change of inventories of a firm during a year ≡ production of the firm during the year – sale of the firm during the year. The sign ‘≡’ stands for identity. Unlike equality (‘=’), an identity always holds irrespective of what variables we have on the left hand and right hand sides of it. For example, we can write 2 + 2 ≡ 4, because this is always true. But we must write 2 × x = 4. This is because two times x equals to 4 for a particular value of x, (namely when x = 2) and not always. We cannot write 2 × x ≡ 4. Observe that since production of the firm ≡ value added + intermediate goods used by the firm, we get, change of inventories of a firm during a year ≡ value added + intermediate goods used by the firm – sale of the firm during a year. …” “2.2.1 The Product or Value Added Method … Notice that change in inventories takes place over a period of time. Therefore it is a flow variable. …” |