Which of the following are true?
a) Machines produced in an economy are intermediate goods, since they get used up in production of other goods.
b) Investment in physical capital increases GDP of an economy.
c) When interest rates are high, investment in physical capital decreases.

b and c

The correct answer is option 3: b and c

Let's evaluate each statement:

a) Machines produced in an economy are intermediate goods, since they get used up in production of other goods. This is incorrect. Machines are classified as capital goods or investment goods, not intermediate goods. ‘Investment goods’ (such as machines) are also part of the final goods – they are not intermediate goods like raw materials. They are used over several years to produce other goods but are not used up in the production of other goods within the same year. machines are thus considered as final goods.

b) Investment in physical capital increases GDP of an economy. This is true. Investment in physical capital, such as machinery, buildings, and infrastructure, contributes to the productive capacity of the economy, which in turn increases GDP.

c) When interest rates are high, investment in physical capital decreases. This is also true. Higher interest rates increase the cost of borrowing, which typically reduces investment in physical capital as businesses may delay or reduce their investment plans due to higher financing costs.