Under the expenditure method, which of the following is classified as gross domestic capital formation?
Answer and explanation
Correct answer: A firm purchasing a new machine
Gross domestic capital formation includes expenditure on newly produced fixed assets that support production over more than one period, along with inventory changes. A firm’s purchase of a new machine is therefore investment and part of GDCF. Household food purchases are consumption, teachers’ salaries are government consumption, and an imported phone is not domestically produced capital formation.
Frequently asked questions
What is the correct answer to this question?
A firm purchasing a new machine
Why is this the correct answer?
Gross domestic capital formation includes expenditure on newly produced fixed assets that support production over more than one period, along with inventory changes. A firm’s purchase of a new machine is therefore investment and part of GDCF. Household food purchases are consumption, teachers’ salaries are government consumption, and an imported phone is not domestically produced capital formation.
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: Methods of calculating national income - Expenditure Method.
