1. Although a small part of the overall economy, changes in inventories can influence economic growth measures significantly because they:

A. reflect general business sentiment.

B. tend to move forcefully up or down.

C. determine the availability of goods for sale.

2. Inventories tend to rise when:

A. inventory–sales ratios are low.

B. inventory–sales ratios are high.

C. economic activity begins to rebound.

3. Inventories will often fall early in a recovery because:

A. businesses need profit.

B. sales outstrip production.

C. businesses ramp up production because of increased economic activity.

4. In a recession, companies are most likely to adjust their stock of physical capital by:

A. selling it at fire sale prices.

B. not maintaining equipment.

C. quickly canceling orders for new construction equipment.

5. The inventory–sales ratio is most likely to be rising:

A. as a contraction unfolds.

B. partially into a recovery.

C. near the top of an economic cycle.