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CHANGE IN BUSINESS INVENTORIES: The increase or decrease in the stocks of final goods, intermediate goods, raw materials, and other inputs that businesses keep on hand to use in production. This is one of two main categories of gross private domestic investment included in the National Income and Product Accounts maintained by the Bureau of Economic Analysis. The other category is fixed investment. Change in business inventories is NOT what most people think of when the topic of business investment arises. Inventory changes are considered investment because firms need inventories to smooth the flow of production and sales just like they need factories and equipment to produce goods. In fact, inventories are frequently termed "working capital."

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Lesson 20: Federal Reserve System | Unit 3: The Fed Pyramid Page: 8 of 20

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The 7-member Board of Governors is the policy making body of the Fed.

The Board of Governors:

  • The Board sets the regulations, rules and policies affecting the money supply and the commercial banking system.
  • Each member of the Board is appointed by the President and approved by the Senate to a 14-year term, with terms staggered every two years.
  • The system is designed to keep the Board non-political: the Board is NOT supposed to be working for the President.
  • The Fed is relatively independent of Congress, too.

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ASSUMPTIONS, CLASSICAL ECONOMICS

Classical economics, especially as directed toward macroeconomics, relies on three key assumptions--flexible prices, Say's law, and saving-investment equality. Flexible prices ensure that markets adjust to equilibrium and eliminate shortages and surpluses. Say's law states that supply creates its own demand and means that enough income is generated by production to purchase the resulting production. The saving-investment equality ensures that any income leaked from consumption into saving is replaced by an equal amount of investment. Although of questionable realism, these three assumptions imply that the economy would operate at full employment.

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Today, you are likely to spend a great deal of time touring the new suburban shopping complex wanting to buy either decorative picture frames or storage boxes for your income tax returns. Be on the lookout for broken fingernail clippers.
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One of the largest markets for gold in the United States is the manufacturing of class rings.
"The time to repair the roof is when the sun is shining."

-- John F. Kennedy, 35th U. S. president

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