Which of the following statements about investment spending is correct?

• A. Investment spending only occurs in the financial markets.
• B. Investment spending includes the purchase of stocks and bonds by households.
• C. Investment spending refers to the purchase of new capital goods by firms.
• D. Investment spending is the same as government spending on public goods.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definition of investment spending in microeconomics. Investment spending refers to expenditures on new capital goods, such as machinery, buildings, and equipment, that firms use to produce goods and services.
2. Step 2: Differentiate investment spending from financial market transactions. Buying stocks and bonds is a financial investment, but it does not count as investment spending in the economic sense because it does not create new capital goods.
3. Step 3: Recognize that investment spending is not limited to financial markets. It specifically involves real investment in physical capital, not just financial assets.
4. Step 4: Clarify that government spending on public goods is distinct from investment spending. Government spending on public goods is categorized separately and does not represent investment in capital goods by firms.
5. Step 5: Conclude that the correct statement is the one that defines investment spending as the purchase of new capital goods by firms, which aligns with the economic concept of investment.