A car manufacturing firm pays a supplier to install new machinery in a factory. Which of the following statements is true?

Question

BlackTom AI · Accepted Answer

Spending by a firm on acquiring and putting new machinery into operation is classified as business (nonresidential) investment, so the correct answer is b.

1. Relevant knowledge points and concepts
- GDP by expenditure: GDP = C + I + G + (X − M), where I (investment) includes business fixed investment (structures, machinery and equipment), residential investment, and changes in inventories.
- Business fixed investment includes not only the purchase price of new capital goods but also associated installation and construction costs that make the capital ready for use.
- Consumption (C) refers to household spending on goods and services; inventories are finished or in-process goods held for sale, not new capital equipment.

2. Step-by-step reasoning
- A car manufacturer hires a supplier to install new machinery in its factory. The firm is acquiring new capital equipment and paying for installation services that enable productive use.
- This payment increases the firm’s capital stock (gross fixed capital formation) rather than household consumption or inventory holdings.
- Official national accounts capitalize installation costs as part of the investment in the capital asset; they are not treated as consumption.

3. Intermediate “calculation” steps (classification logic)
- Is the buyer a household? No → not consumption (C).
- Is the spending creating/adding to inventories of goods for sale? No → not inventory change.
- Is the spending on fixed capital that increases productive capacity? Yes → classify as investment (I).

4. Why the correct answer is correct
- Because the payment is directly tied to acquiring and readying new machinery (a capital good) for production, it is included in the investment component of GDP (specifically, business fixed investment).

5. Why other options are incorrect
- a. Incorrect: consumption covers household spending, not firms’ capital purchases.
- c. Incorrect: inventories are stocks of goods for sale; machinery is a capital asset, not inventory.
- d. Incorrect: market transactions for capital goods and installation are included in GDP as investment.

6. Conclusion
- Therefore, the payment is included in GDP as investment; option b matches the correct classification.

A car manufacturing firm pays a supplier to install new machinery in a factory. Which of the following statements is true?单项选择题

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A car manufacturing firm pays a supplier to install new machinery in a factory. Which of the following statements is true?

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