Question

Which of the following is included in the investment component of GDP?

a. households’ purchases of newly constructed homes.
b. net additions to firms’ inventories.
c. firms’ purchases of capital equipment.
d. All of the above are correct.

Answer 1

The correct answer is option d.

Step-by-step explanation:

The GDP or aggregate demand includes consumption spending, investment expenditure, government spending, and net exports.

Investment can be defined as the expenditure incurred on the purchase of goods that are not consumed today but are used to create future wealth.

It is focused on future returns. Investment is an expenditure to acquire an asset.

Here, the purchase of homes by households, an increase in firms' inventories, and firms' purchase of capital equipment are contributing to acquiring assets. All of them will be included in the investment component.