Which of the following statements are true?
(A) Machines produced in an economy are intermediate goods, since they get used up in the production of other goods.
(B) An increase in autonomous investment raises the aggregate demand in an economy.
(C) When interest rates are high, firms tend to lower their investment.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (B) and (C) only
(A) Machines produced in an economy are intermediate goods, since they get used up in the production of other goods. — Incorrect. Machines are final goods (investment goods). They are not used up but give services over many years.
(B) An increase in autonomous investment raises the aggregate demand in an economy. — Correct. Investment is a part of AD, so more autonomous investment raises AD.
(C) When interest rates are high, firms tend to lower their investment. — Correct. The rate of interest is the cost of funds for investment, so a high rate lowers investment.
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. …” “4.2 Determination of Income in Two-sector Model In an economy without a government, the ex ante aggregate demand for final goods is the sum total of the ex ante consumption expenditure and ex ante investment expenditure on such goods, viz. AD = C + I. …” “4.3.2 Effect of an Autonomous Change in Aggregate Demand on Income and Output … Another factor is interest rate: interest rate is the cost of investible funds, and at higher interest rates, firms tend to lower investment.” |