As investment is defined in NCERT, which of the following is NOT an investment?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → A household buys shares of a company from the stock market.
In macroeconomics, investment is an addition to the stock of physical capital, or a change in a producer’s inventory.
Option (1) A firm buys a new machine for its factory. — Investment. A machine adds to physical capital.
Option (2) A household buys shares of a company from the stock market. — Not investment. Buying existing shares only changes who owns a company. It adds no machine, building or stock of goods.
Option (3) A firm’s stock of finished goods goes up during the year. — Investment. A rise in the stock of finished goods is inventory investment.
Option (4) The government builds a new road. — Investment. A road adds to the future productive capacity of the economy.
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. …” |