Why will a rise in the price of a new domestically produced machine purchased by the government be included in the deflator?
Answer and explanation
Correct answer: Because it is domestic final government investment
A newly produced machine is a capital good, but when it is purchased for use as investment rather than as an input for immediate resale, it is treated as final expenditure. Since it is produced domestically and purchased by the government, its value enters domestic final investment or government expenditure and its price can affect the deflator. Thus option A is correct; it is not an import or automatically an intermediate good.
Frequently asked questions
What is the correct answer to this question?
Because it is domestic final government investment
Why is this the correct answer?
A newly produced machine is a capital good, but when it is purchased for use as investment rather than as an input for immediate resale, it is treated as final expenditure. Since it is produced domestically and purchased by the government, its value enters domestic final investment or government expenditure and its price can affect the deflator. Thus option A is correct; it is not an import or automatically an intermediate good.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
