A firm earned a profit last year. This year it uses the profit:
(A) to build a new factory shed
(B) to buy new machines
(C) to pay higher wages to its workers
As per NCERT, which of these are examples of investment expenditure?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) and (B) only
Investment expenditure is spending that raises productive capacity, such as new machinery or new factories.
(A) to build a new factory shed — Investment. A new shed adds to the firm’s capacity to produce.
(B) to buy new machines — Investment. New machines also expand production.
(C) to pay higher wages to its workers — Not investment. Wages are a payment to labour for its services. They do not add to productive capacity.
NCERT (2026-27): “1.2 Context of the Present Book of Macroeconomics … After producing output with the help of these three factors of production, namely capital, land and labour, the entrepreneur sells the product in the market. The money that is earned is called revenue. Part of the revenue is paid out as rent for the service rendered by land, part of it is paid to capital as interest and part of it goes to labour as wages. The rest of the revenue is the earning of the entrepreneurs and it is called profit. Profits are often used by the producers in the next period to buy new machinery or to build new factories, so that production can be expanded. These expenses which raise productive capacity are examples of investment expenditure. …” |