Assertion (A): A rise in the inventories of a firm during a year is counted as investment.
Reason (R): Inventories are treated as capital, and an addition to the stock of capital of a firm is known as investment.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Assertion (A): A rise in the inventories of a firm during a year is counted as investment. — True. A rise in inventories is part of a firm’s investment.
Reason (R): Inventories are treated as capital, and an addition to the stock of capital of a firm is known as investment. — True. Inventories are capital, and an addition to capital is investment.
Why R explains A?
R gives the two steps: inventories are capital, and adding to capital is investment. So a rise in inventories is investment, which is A.
NCERT (2026-27): “2.2.1 The Product or Value Added Method … Inventories are treated as capital. Addition to the stock of capital of a firm is known as investment. Therefore, change in the inventory of a firm is treated as investment. …” |