Question

Societies choose what share of their resources to devote to consumption and what share to devote to investment. Some of these decisions involve private spending; others involve government spending.

For each form of private spending, indicate whether it represents consumption or investment.

Private Spending	Consumption	Investment
People buying newspapers
Firms buying soft drinks for a holiday party
Firms buying automobiles for delivery services
Firms buying machines

For each form of government spending, indicate whether it represents consumption or investment.

Government Spending	Consumption	Investment
Building bridges
Buying medical equipment
Building airports
Paying workers to administer government programs

Answer 1

Consumption refers to buying durable and non-durable goods for consumption purpose.

Investment refers to investing money in order to purchase capital assets, financial assets etc. so that profit can be earned.

Private spending can be divided into two parts, i.e., consumption and investment.

People buying newspaper (Consumption)

Firms buying soft drinks for a holiday party (Consumption)

Firms buys automobiles for delivery services (Investment)

Firm buying machines. (Investment)

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Government spending can be divided in two parts i.e., Consumption and Investment.

Building bridges (Investment)

Buying medical equipmenst. (Investment)

Building airports (Investment)

Paying workers for administer government programs (Consumption)