Which of the following is the odd one out, being NOT a part of investment in national income accounting?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Purchase of shares of a company
In economics, investment means capital formation: a rise in inventories, new machinery and buildings, or new housing. Buying shares only transfers ownership of a financial asset, so it is not investment.
Option (1) Rise in the value of a firm's inventories — True. A rise in inventories is inventory investment.
Option (2) Addition of machinery to a factory — True. New machinery is fixed business investment.
Option (3) Addition of new housing facilities — True. New housing is residential investment.
Option (4) Purchase of shares of a company — False. Buying shares adds nothing to the stock of capital.
NCERT (2026-27): “2.2.1 The Product or Value Added Method … There can be three major categories of investment. First is the rise in the value of inventories of a firm over a year which is treated as investment expenditure undertaken by the firm. The second category of investment is the fixed business investment, which is defined as the addition to the machinery, factory buildings and equipment employed by the firms. The last category of investment is the residential investment, which refers to the addition of housing facilities. …” “2.1 Some Basic Concepts of Macroeconomics … This is how economists define investment. This must not be confused with the commonplace notion of investment which implies using money to buy physical or financial assets. Thus use of the term investment to denote purchase of shares or property or even having an insurance policy has nothing to do with how economists define investment. Investment for us is always capital formation, a gross or net addition to capital stock.” |