In economics, the term investment refers to:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Capital formation
For economists, investment means capital formation, an addition to the stock of capital.
Buying shares, an existing house or an insurance policy is investment only in the everyday sense. It adds no new capital goods.
NCERT (2026-27): “2.1 Some Basic Concepts of Macroeconomics … 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.” |