Which of the following purchases do national income accountants consider to be investment?

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Question: Which of the following purchases do national income accountants consider to be investment?

Option 1: corporate bonds. While investing in bonds is a financial asset transaction, it is not classified as gross private domestic investment. National income accounts separate financial investments from real (capital) investment, so bonds are not counted as investment in the GDP sense.

Option 2: an automobile for private, nonbusiness use. This is a consumer durable; it represents consumption spending by households on a good used for personal satisfaction, not an addition to the economy’s stock of capital goods. Therefore, it is not counted as investment.

Option 3: a new house. Constructing a new residence adds to the economy’s capital stock and is counted as residential fixed investment. It increases the economy’s future production capacity, which is exactly what investment measures in national accounts.

Option 4: gold coins. Holding or trading gold coins is typically treated as a financial asset or a store of value, not a capital good that contributes to future production. Hence, it is not counted as investment in GDP terms.

Summary: Among the options, only the purchase that expands the economy’s productive capacity (a new house) qualifies as investment in national income accounting, while the others are categorized as consumption or financial assets.

Which of the following purchases do national income accountants consider to be investment?

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Which of the following purchases do national income accountants consider to be investment?

View Explanation

Log in for full answers

Similar Questions

Suppose GDP is $300 million, depreciation is $10 million, net payments to the rest of the world are $30 million, and statistical discrepancy is $8 million. What is the value of national income?

For an economy as a whole,[Fill in the blank]

Given the information from the table below, the GDP is equal to _____ National Income $50,000 Net Income Payments to Rest of the World $3,000 Consumption of fixed capital $5,000 Statistical discrepancy $1,000

Gross national income consists of GDP plus Blank ______, without including any payments made to those who do not live in the country but who contribute to the domestic economy.

GNP equals GDP ______ income earned domestically by foreigners ______ income that nationals earn abroad.

The purchase and sale of financial securities (i.e., bonds and/or stocks of shares) is not included in calculations of investment spending because ________.

Assume a closed economy in which GDP is $20 trillion, consumption spending is $16 trillion, and government spending is $2 trillion. If the government imposes taxes of $2 trillion, what is the level of investment spending?

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GNP equals GDP income earned domestically by foreigners income that nationals earn abroad.