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    Business inventories and GDP

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    Why do economists attempting to forecast short run future changes in real GDP and employment look closely at data on business inventories and unfilled orders?

    What conclusion could be drawn if the volume of unfilled orders and average length of delivery times decreased while inventories increased dramatically?

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    Solution Preview

    Changes in GDP often occur only after a recession is well underway. So economists often try to predict them in advance, by looking at how well goods are selling, which is indicated by changes in inventories. Businesses in general will keep the same amount in inventory. If inventories increase, therefore, they are selling less than they expected to. On the other hand, unfilled orders ...

    Solution Summary

    How data on business inventories and unfilled orders can be used to predict changes in real GDP