Chapter 3R, Problem 7MCQ

To determine

The question requires us to identify the factor which is included in the investment spending.

Explanation of Solution

Investment spending is the sum of the following four factors:

1. Business fixed investment: Addition to capital goods such as machinery and buildings by firms.
2. Residential construction investment: Investment by households in making/constructing buildings for residence.
3. Public investment: Investment by the government
4. Inventory investment: It includes the change in the stock of finished goods and semi-finished goods.

So, investment spending includes spending on physical capital.

Option “b” is correct.