Why are machines produced in an economy considered part of "Final Goods" and "Investment"? 1. They are not used up in the production process like raw materials. 2. They are consumed immediately in the production process. 3. They add to the future productive capacity of the economy. Which of the statements given above is/are correct?

Correct Option The correct option is 1 and 3 only. Explanation In National Income Accounting, goods are classified into Final Goods and Intermediate Goods. Final goods are those that have crossed the boundary line of production and are ready for use by their final users. These are further divided into Consumption Goods and Capital Goods. Machines are classified as Capital Goods, which are crucial for the concept of Investment (Gross Capital Formation). Statement-wise Analysis - Statement 1 is Correct: Machines are durable goods used in the production process. Unlike raw materials (intermediate goods), which are completely transformed or exhausted in a single act of production, machines are not "used up" immediately. They undergo gradual wear and tear (depreciation) over a long period but retain their identity. - Statement 2 is Incorrect: Goods that are consumed immediately in the production process are termed Intermediate Goods (e.g., electricity, raw cotton). Machines are not consumed immediately; they facilitate production over multiple cycles. Therefore, they are part of the final product of the economy, not intermediate consumption. - Statement 3 is Correct: Investment is defined as the addition to the physical stock of capital. Since machines increase the productive capacity of a firm and the economy as a whole, their purchase is treated as Investment (specifically, fixed business investment). They enable future production, distinguishing them from consumption goods which satisfy current wants. Key Takeaway Capital Goods (like machines) are considered Final Goods because they are not resold or fully exhausted in the current year. They constitute Investment because they add to the capital stock, enhancing the economy's future productive capacity.

NCERT Class 12 Economics — Chapter 6: Determination of Income and Employment

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Why are machines produced in an economy considered part of "Final Goods" and "Investment"?

They are not used up in the production process like raw materials.
They are consumed immediately in the production process.
They add to the future productive capacity of the economy.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A1 and 3 only
B1 and 2 only
C2 only
D1, 2 and 3

Did you get this right?

Solution

Correct Option

The correct option is 1 and 3 only.

Explanation

In National Income Accounting, goods are classified into Final Goods and Intermediate Goods. Final goods are those that have crossed the boundary line of production and are ready for use by their final users. These are further divided into Consumption Goods and Capital Goods. Machines are classified as Capital Goods, which are crucial for the concept of Investment (Gross Capital Formation).

Statement-wise Analysis

Statement 1 is Correct: Machines are durable goods used in the production process. Unlike raw materials (intermediate goods), which are completely transformed or exhausted in a single act of production, machines are not "used up" immediately. They undergo gradual wear and tear (depreciation) over a long period but retain their identity.
Statement 2 is Incorrect: Goods that are consumed immediately in the production process are termed Intermediate Goods (e.g., electricity, raw cotton). Machines are not consumed immediately; they facilitate production over multiple cycles. Therefore, they are part of the final product of the economy, not intermediate consumption.
Statement 3 is Correct: Investment is defined as the addition to the physical stock of capital. Since machines increase the productive capacity of a firm and the economy as a whole, their purchase is treated as Investment (specifically, fixed business investment). They enable future production, distinguishing them from consumption goods which satisfy current wants.

Key Takeaway

Capital Goods (like machines) are considered Final Goods because they are not resold or fully exhausted in the current year. They constitute Investment because they add to the capital stock, enhancing the economy's future productive capacity.

Your note

More from Chapter 6: Determination of Income and Employment

With reference to the government sector in the determination of income, consider the following statements: 1. Government expenditure adds to the aggregate demand similar to investment and consumption. 2. Taxes imposed by the government increase the disposable income of households. 3. In the absence of indirect taxes, the GDP is identically equal to the National Income. Which of the statements given above is/are correct?

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Match List I with List II and select the correct answer using the code given below: List I | List II A. Excess Demand | 1. Amplifies changes in autonomous expenditure B. Deficient Demand | 2. Leads to a decline in prices in the long run C. Multiplier | 3. Signals that supply exceeds demand D. Inventory Accumulation | 4. Leads to a rise in prices in the long run

medium

Consider the following statements regarding Savings in an economy: 1. Savings is defined as the portion of income that is used for tax payments. 2. The Marginal Propensity to Save (MPS) is the change in savings per unit change in income. 3. If the Marginal Propensity to Consume (MPC) is 1, the Marginal Propensity to Save (MPS) will be 0. Which of the statements given above is/are correct?

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What does "Negative Inventory Investment" signify in an economy? 1. A rise in the stock of finished goods. 2. A depletion of existing stock to meet excess demand. 3. A situation where planned sales are less than actual sales. Which of the statements given above is/are correct?

medium

With reference to the consumption function in an economy, consider the following statements: 1. Autonomous consumption is the consumption expenditure that occurs only when income is positive. 2. Induced consumption is the portion of consumption that varies directly with the level of income. 3. The marginal propensity to consume determines the rate at which induced consumption changes as income changes. Which of the statements given above is/are correct?

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Correct Option

The correct option is 1 and 3 only.

Explanation

Statement-wise Analysis

Statement 1 is Correct: Machines are durable goods used in the production process. Unlike raw materials (intermediate goods), which are completely transformed or exhausted in a single act of production, machines are not "used up" immediately. They undergo gradual wear and tear (depreciation) over a long period but retain their identity.
Statement 2 is Incorrect: Goods that are consumed immediately in the production process are termed Intermediate Goods (e.g., electricity, raw cotton). Machines are not consumed immediately; they facilitate production over multiple cycles. Therefore, they are part of the final product of the economy, not intermediate consumption.
Statement 3 is Correct: Investment is defined as the addition to the physical stock of capital. Since machines increase the productive capacity of a firm and the economy as a whole, their purchase is treated as Investment (specifically, fixed business investment). They enable future production, distinguishing them from consumption goods which satisfy current wants.