Which of the following is classified as investment in national income (GDP) accounting?

• A. A household buying shares of stock
• B. A consumer purchasing a new car for personal use
• C. A firm purchasing new machinery for its factory
• D. The government paying salaries to public school teachers

Answer: (C)

Verified step by step guidance

1. Understand the concept of 'investment' in the context of national income (GDP) accounting. Investment refers to the purchase of goods that will be used for future production, such as capital goods, and additions to inventories.
2. Identify which options involve the creation or purchase of capital goods or additions to productive capacity. For example, a firm purchasing new machinery increases productive capacity and counts as investment.
3. Recognize that buying shares of stock is a financial transaction and does not represent production of new goods or services, so it is not counted as investment in GDP.
4. Note that a consumer purchasing a new car for personal use is considered consumption, not investment, because it is for personal use rather than production.
5. Understand that government paying salaries to public school teachers is government consumption expenditure, not investment, because it is payment for services rather than purchase of capital goods.