Question

Which of the following is classified as spending on investment?

I. new residential construction
II. business spending on new equipment
III. business spending on structures such as office buildings
IV. purchase of government bonds

Answer 1

Spending on new residential construction, business spending on new equipment, and business spending on structures like office buildings are classified as spending on investment. They include expenditures on new capital goods and are vital for economic growth and job creation.

Step-by-step explanation:

Spending on investment is classified in various categories. Among the options provided:

• New residential construction: Yes, this is classified as investment because it involves spending on residential structures like single-family homes.
• Business spending on new equipment: Yes, this counts as investment expenditure, falling under the category of producer's durable equipment.
• Business spending on structures such as office buildings: Yes, this is considered an investment as it includes nonresidential structures.
• Purchase of government bonds: No, this is not typically considered an investment in this context as it does not involve spending on physical capital or inventory.

Therefore, options I, II, and III are classified as investment spending because they include expenditures on new capital goods such as residential structures, business equipment, and nonresidential structures. These are crucial for economic growth as they relate to the creation of jobs and can fluctuate with changes in technology or business confidence.