Which of the following is an example of Investment spending?

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Question: Which of the following is an example of Investment spending?

Option a: Spending by a foreign country on an Australian-made car. This is not investment spending in the domestic economy; it is an example of net export activity (exports) if the car is sold abroad, or could be a form of foreign demand, but it does not constitute domestic investment.

Option b: Spending by households on a computer. This is consumer spending, not investment spending. It increases household consumption and may affect future productivity indirectly, but it is classified as consumption, not investment by firms.

Option c: Spending by a business on a new machine. This directly fits the definition of investment spending in macroeconomics: businesses investing in capital goods to expand or update productive capacity, which is counted as gross private domestic investment.

Option d: Spending by individuals on goods such as a new chair. This is simply personal consumption expenditure on durables, not business investment, and so is not investment spending.

In summary, among the options provided, the activity that aligns with the standard macroeconomic definition of Investment spending is the purchase of a new machine by a business, since it adds to the stock of capital and enhances future production capacity.

MUF0062 Economics Unit 2 - Semester 2, 2025

Which of the following is an example of Investment spending?

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