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Chapter 6: Q2. (page 129)

True or False. The term economic investment includes purchases of stocks, bonds, and real estate.

Short Answer

Expert verified

The statement 鈥渢he term economic investment includes purchases of stocks, bonds, and real estate鈥� is false.

Step by step solution

01

Meaning of economic investment

Economic investment is the spending that would increase the economy鈥檚 output in the future. The economic investment is a payment for newly acquired capital goods that would increase the productive capacity of the firms in the future. This can include investment in machinery, tools and factories.

The objective of economic investment is to increase the productive capacity of the economy in the future.

02

Reason for the false statement

Stocks, bonds, and real estate form a part of the financial market. The purchase of financial assets will not increase the output of the economy. It merely transfers the ownership of an asset from one party to another. The productive capacity can only be increased by investment in newly acquired capital goods.

The financial investment refers to the financial market, whereas the economic investment refers to the market for capital goods. Therefore, the economic investment and purchase of stocks, bonds, and real estate are separate phenomena. Hence, the given statement is false.

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