Consider the following statement related to investment:
(A) The common notion is that investment is using money to buy physical or financial assets.
(B) From an economist's view, investment is capital formation.
(C) While measuring the final output, the portion which comprises capital goods, is the Gross Investment of an Economy.
(D) The common and economic view regarding investment does not make any difference. It is the same.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (C) only
(A) The common notion is that investment is using money to buy physical or financial assets. — Correct. In everyday talk, buying an asset such as a share or a plot of land is called investment. This is the commonplace notion.
(B) From an economist's view, investment is capital formation. — Correct. Capital formation means a gross or net addition to the capital stock, the machines, buildings and roads of the economy.
(C) While measuring the final output, the portion which comprises capital goods, is the Gross Investment of an Economy. — Correct. Final output is made up of consumption goods and capital goods. The capital goods part is gross investment.
(D) The common and economic view regarding investment does not make any difference. It is the same. — Incorrect. Using money to buy an asset has nothing to do with the economist’s meaning. That meaning counts only additions to the capital stock.
NCERT (2026-27): “2.1 Some Basic Concepts of Macroeconomics … To come back to our discussion on the measure of final output, that part of our final output that comprises of capital goods constitutes gross investment of an economy1. These may be machines, tools and implements; buildings, office spaces, storehouses or infrastructure like roads, bridges, airports or jetties.… Footnote 1 of the same chapter: 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.” |