Question

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

Private Spending Consumption Investment
1. Laundromats buying washing machines
2. People buying newspapers
3. Firms buying automobiles for delivery services
4. Firms buying soft drinks for a holiday party

Answer 1

Answer: 1. Investment; 2. Consumption; 3. Investment; 4. Consumption

Explanation: Consumption is defined as trading money for good or services as an individual as well as to absorb information, especially through a media form. It refers to expenditure on consumer goods that are not used in the production of other goods and services.

Investment on the other hand refers to expenditure on capital goods or assets that can be used to produce other goods and services thus investment spending stimulates greater production in an economy than consumption spending does.

Private consumption spending in this case would include people buying newspapers and firms buying soft drinks for a holiday party. Private investment spending includes laundromats buying washing machines and firms buying automobile for delivery services.