Assertion (A): Machines produced in an economy during a year are counted as investment goods and not as intermediate goods.
Reason (R): Investment decisions by producers depend, to a large extent, on the market rate of interest.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Both (A) and (R) are true but (R) is not the correct explanation of (A).
Assertion (A): Machines produced in an economy during a year are counted as investment goods and not as intermediate goods. — True. Machines are final goods. They are not raw materials that disappear into other goods.
Reason (R): Investment decisions by producers depend, to a large extent, on the market rate of interest. — True. A firm deciding whether to buy a new machine looks at the market rate of interest.
A is about how machines are classed. R is about what decides the amount of investment.
Why R does not explain A? The interest rate affects how much firms invest. It does not tell us why a machine is a final good. The real reason is that machines are not used up in making other goods; they yield their services over a number of years. Raw materials are used up, so they are intermediate goods.
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. Investment decisions by producers, such as whether to buy a new machine, depend, to a large extent, on the market rate of interest. However, for simplicity, we assume here that firms plan to invest the same amount every year. …” |