The Role of Inventory Investment in the National Income Identity
In a simplified closed economy without a government, the national income identity is expressed as Y ≡ C + I + II. Explain why this relationship is considered an 'identity' that is always true, rather than an 'equilibrium condition'. Your explanation should focus on the specific role that inventory investment (II) plays in ensuring this relationship holds under all circumstances, including when planned spending does not equal total output.
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