Question

This occurs when a person or firm purchases new capital. This occurs when a person's income exceeds his consumption. Which of the following situations represent investment? Check all that apply. Your roommate earns $100 and deposits it in his account at a bank. Your family takes out a mortgage and buys a new house. You use your $200 paycheck to buy stock in AT&T. You borrow $1,000 from a bank to buy a car to use in your pizza delivery business.

Answer 1

Answer: Buying $200 stock in AT&T is an example of investment. As in this case the persons income exceeds his consumption and he buys new capital.

Borrowing $1000 from a bank to buy a car to use in business is also an investment as in this case buying a car is like investing in a cash flow producing asset, as the car will be an asset which will help earn money from the pizza business.

Explanation:

Roommate depositing $100 is an example of saving and not investing.

Taking out a mortgage and buying a house is an example of consumption and not investment.