This exercise will require students to identify economic actions that would be c

Question

This exercise will require students to identify economic actions that would be characterized as part of investment. Indicate which of the following actions constitute investment according to the economist's definition of that term Include in Investment Do Not Include in Investment Economic Action PharmCo builds a new factory in the United States to manufacture pharmaceuticals You buy 100 shares of PharmCo stock A small drugmaker goes bankrupt, and PharmCo purchases its factory and equipment. Your family buys a newly constructed home from a developer Your family buys an older home from another family. (Hint: Are there any new products demanded by this action?)

Explanation / Answer

The items that are a part of investments include new capital acquired and additions made to existing capital stock so we include

1) PharmaCo 's new factory (Option 1)

2) Family buys house (Option 4) as it is a residential investment

We will not include the remaining items as they are not new or they are mere paper transactions.

Hence, 1) is included, 2) is not included, 3) is not included, 4) is included 5) is not included

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