Match List-I with List-II.List-IList-II(A) A cloth mill has more unso…

Match List-I with List-II.

List-I	List-II
(A) A cloth mill has more unsold cloth at the end of the year than at the beginning	(I) Residential investment
(B) A firm installs new machines in its factory	(II) Not investment in the sense economists use the term
(C) New houses are built during the year	(III) Change in inventories treated as investment
(D) A household buys shares of a company	(IV) Fixed business investment

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → (A)-(III), (B)-(IV), (C)-(I), (D)-(II)

For economists, investment means addition to capital stock. There are three categories of it; buying financial assets is not one of them.

List-I	List-II	Reason
(A) A cloth mill has more unsold cloth at the end of the year than at the beginning	(III) Change in inventories treated as investment	A rise in the value of inventories is investment by the firm.
(B) A firm installs new machines in its factory	(IV) Fixed business investment	It is an addition to machinery employed by the firm.
(C) New houses are built during the year	(I) Residential investment	It is an addition of housing facilities.
(D) A household buys shares of a company	(II) Not investment in the sense economists use the term	Shares only change hands. No capital is formed.

NCERT (2026-27): “2.2.1 The Product or Value Added Method … Inventories are treated as capital. Addition to the stock of capital of a firm is known as investment. Therefore, change in the inventory of a firm is treated as investment. 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.”

“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.”