Which Of The Following Is An Economic Investment

Key Points Economic Investments: Economic investments are the investments made by businesses to drive their production.

• They refer to business activities within an economy that lead to the production of other goods and services.
• Investment is the value of all goods and services produced for use in the production of other goods.
• It involves investment in real assets only to increase production.

National Income Calculation: National income can be defined as the total market value of all final goods and services (in terms of money) produced within the domestic territory during an accounting year.

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Items to be included while estimating national income:

1. Wages earned by the resident employees working outside the Domestic Territory.
2. Profits earned by resident institutions located outside the domestic territory.
3. The purchase of raw materials that will add value to the final product.
4. Defence and security services are provided by the government.

Items to be excluded while estimating national income:

1. Unearned income in the form of transfer payments like pensions, scholarships, unemployment allowances etc.
2. leisure activities that are meant for self-consumption.
3. Expenditure on intermediate consumption, like expenditure on raw materials, electricity, water, etc.
4. Income from financial transactions like the purchase of shares, bonds, debentures etc.

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Important Points

From the question above, the situation which represents economic investment in national income calculation is:

Buying a newly constructed house for self-occupation:

• This is correct because it is used for business purposes and adds value to the economy.

Buying of new shares:

• The purchase of new shares is not included in the national income calculation.

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Buying a new car by a publishing house for delivering books:

• Buying a new car by a publishing house for the purpose of delivering books is included in the national income calculation because it is a capital good.

Buying a new car by a household:

• A new car purchased by a household is not included in the national income calculation because the purpose of buying a car is not specified and car is a depreciated good.

Thus, statements A and C are correct.

Additional Information

There exist three methods of measuring national income,

• Value- added method/product method
• Income method
• Expenditure method

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Category: WHICH