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Which of the following is not investment expenditure in goods and services?
A Expansion of the main plant of a company B Purchase of a house C Purchase of machinery D An increase in business inventories
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Investment expenditurerefers to the expenditure incurred either by an individual or a firm or thegovernment for the creation of new capital assets like machinery, building etc.Business inventories are goods that firms produce in one time period with theintent to sell later and they are counted as part of business investment. Thepurchase of house cannot be considered as investment expenditure as it may befor personal use.Correct option is B. Purchase of a house
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Guides
Investment expenditure involves the spending on capital assets like machinery, buildings, etc., aiming for future returns. Let's break down the provided concepts:
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Expansion of the main plant of a company (Option A) - This is a classic case of investment expenditure. The expansion of a plant constitutes a long-term capital asset aimed at enhancing productivity or capacity for future returns.
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Purchase of machinery (Option C) - Another form of investment expenditure. Machinery contributes to the production process and is considered a capital asset.
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An increase in business inventories (Option D) - Surprisingly, this is also counted as investment expenditure. Business inventories, though they may not seem like traditional investments, represent goods produced for future sales.
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Purchase of a house (Option B) - This stands out as the answer. While purchasing a house involves a significant expense, it's typically considered consumption expenditure rather than investment. Houses bought for personal use aren't considered capital assets meant for generating future income.
Now, diving into the related concepts mentioned in the article:
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Gross Domestic Product (GDP): It's the total value of all finished goods and services produced within a country's borders in a specific time frame. It's calculated through various methods like the expenditure approach (consumption + investment + government spending + exports - imports) or income approach (summing up all factor incomes earned).
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Trade in Goods and Services: This encompasses the movement of tangible goods, intangible services, capital transfers, and foreign investments across borders.
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Calculation of GDP: GDP calculation involves several components like Gross Investment, Exports, Imports, Private Consumption Expenditure, Government Purchases, and Inventory Investment. It can be computed through different approaches, such as the expenditure or income method.
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Intermediate Goods: Intermediate goods are those used in the production process but not sold directly to consumers. A truck can be an intermediate good if it's used by a company for its operations rather than being the final product for sale.
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Tax Slabs of Goods and Services Tax (GST): This refers to the various tax rates applied to goods and services under the GST regime. Understanding these slabs is essential for businesses and consumers to comply with tax regulations.
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Treatment in Estimating National Income: Estimating national income involves considering various factors like expenditure on healthcare, salaries to residents working abroad, rent received by residents from foreigners, etc. The treatment of these elements impacts the accuracy of the national income calculations.
These concepts are fundamental in understanding economics, especially in the realms of national income estimation, taxation systems, and the calculation of GDP. If you need a deeper dive into any specific area, feel free to ask!
