Which of the following would be considered an investment according to economists?

• A. A consumer saving money in a bank account
• B. A firm purchasing new machinery for its factory
• C. A household spending money on groceries
• D. An individual buying shares of stock in a company

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the economic definition of investment. In economics, investment refers to the purchase of goods that will be used to produce other goods and services in the future, such as capital goods (machinery, buildings, equipment). It does not include financial investments like buying stocks or saving money.
2. Step 2: Analyze each option based on this definition. For example, saving money in a bank account is a financial transaction, not the purchase of a capital good, so it is not considered investment in the economic sense.
3. Step 3: Consider the option of a firm purchasing new machinery. This is a direct purchase of capital goods that will be used to produce other goods, fitting the economic definition of investment.
4. Step 4: Evaluate the household spending on groceries. This is consumption, not investment, because groceries are used for immediate consumption and do not produce future goods or services.
5. Step 5: Look at the individual buying shares of stock. This is a financial investment, transferring ownership but not creating new capital goods, so it is not considered investment in the economic sense.