Question

In the GDP model, investment (I) could be considered all of the following EXCEPT __________.

• A.)

  the purchase of a new restaurant

• B.)

  the increase in capital resources

• C.)

  the purchase of a stock

Answer 1

Answer

Option c) The purchase of a stock.

Reason:

Y = C + I + G + (X − M) is the standard equational (expenditure) representation of GDP.

• “C” = consumption
• “I” = investment
• “G” =  government spending
• “X” = exports
• “M” = imports

Investment includes, for instance, business investment in equipment, but does not include exchanges of existing assets. “Investment” in GDP does not mean purchases of financial products. It is important to note that buying financial products is classed as ‘ saving,’ as opposed to investment.