An increase in investment spending that increases GDP occurs when
A)a family purchases a new car.
B)a business buys a new computer.
C)inventories of new cars are drawn down on the lots of car dealers.
D)the government builds a new office building.

Question

Quizplus · Accepted Answer

Investment spending refers to spending by businesses on capital goods such as machinery, equipment, and buildings. Therefore, the purchase of a new computer by a business is an example of an increase in investment spending that can contribute to an increase in GDP. Purchases by families (such as a new car) and government spending (such as building a new office building) fall under different categories of spending and do not directly contribute to investment spending. The drawing down of inventories may indirectly affect investment spending, but it is not a direct increase in investment spending in and of itself.

An Increase in Investment Spending That Increases GDP Occurs When