If a factory buys a new machine, what is it an example of?
Answer and explanation
Correct answer: Gross investment
A newly purchased machine is a capital good used repeatedly in production. Spending on it adds to the factory’s gross capital formation and is therefore gross investment. Depreciation is the loss in value of an existing asset, not its purchase. Consumption expenditure concerns final goods for immediate use, while transfer income is received without a current productive service in return.
Frequently asked questions
What is the correct answer to this question?
Gross investment
Why is this the correct answer?
A newly purchased machine is a capital good used repeatedly in production. Spending on it adds to the factory’s gross capital formation and is therefore gross investment. Depreciation is the loss in value of an existing asset, not its purchase. Consumption expenditure concerns final goods for immediate use, while transfer income is received without a current productive service in return.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates.
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