Match List-I (a change in a firm’s position during a year) with List-II (how it is treated under investment):
| List-I | List-II | ||
|---|---|---|---|
| (A) | The firm buys a new machine | (I) | Negative inventory investment |
| (B) | The firm buys raw materials and uses them up in production in the same year | (II) | Addition to the stock of physical capital |
| (C) | The firm’s stock of finished goods goes up | (III) | Positive inventory investment |
| (D) | The firm’s stock of finished goods goes down | (IV) | Not investment; an intermediate good |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A) - (II), (B) - (IV), (C) - (III), (D) - (I)
Investment is the addition to physical capital plus the change in inventories. Goods used up in production are intermediate goods and are not investment.
| List-I | List-II | Reason |
|---|---|---|
| (A) The firm buys a new machine | (II) Addition to the stock of physical capital | A machine adds to future productive capacity and is not used up in a year. |
| (B) The firm buys raw materials and uses them up in production in the same year | (IV) Not investment; an intermediate good | Raw materials bought and used up in the same year disappear into other goods, so they are intermediate goods. They never enter the stock. |
| (C) The firm’s stock of finished goods goes up | (III) Positive inventory investment | A rise in inventory is positive inventory investment. |
| (D) The firm’s stock of finished goods goes down | (I) Negative inventory investment | A depletion of inventory is negative inventory investment. |
NCERT (2026-27): “4.1.2 Investment Investment is defined as addition to the stock of physical capital (such as machines, buildings, roads etc., i.e. anything that adds to the future productive capacity of the economy) and changes in the inventory (or the stock of finished goods) of a producer. Note that ‘investment goods’ (such as machines) are also part of the final goods – they are not intermediate goods like raw materials. Machines produced in an economy in a given year are not ‘used up’ to produce other goods but yield their services over a number of years.” “4.2 Determination of Income in Two-sector Model … It should be noted that inventories or stocks refers to that part of output produced which is not sold and therefore remains with the firm. Change in inventory is called inventory investment. It can be negative as well as positive: if there is a rise in inventory, it is positive inventory investment, while a depletion of inventory is negative inventory investment.” |