Question

Identify the variable(s) which may add to the future productive capacity of an economy :

I. Raw material

II. Fixed investment

III. Inventories with producers

(Choose the correct option)

• A. Only I
• B. Only II
• C. II and III
• D. I, II and III

Hint:

Fixed investment such as machines and buildings adds to the capital stock. Raw material is used up and inventories do not add to capacity.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
Productive capacity grows when the stock of capital goods grows. Capital goods are machines, buildings and tools that help production for many years.

Step 2: Check each variable:
I. Raw material: it is an intermediate good that is used up in the production of the year. It does not add to capacity. Not correct.
II. Fixed investment: new machines, buildings and equipment add to the capital stock for future years. Correct.
III. Inventories with producers: stock of unsold goods and materials. They are waiting to be used or sold and do not raise future capacity of production. Not correct.

Step 3: Choose the option:
Only II is right, which is (B). (A), (C) and (D) all include I or III.

Final Answer:
Only fixed investment adds to future productive capacity. This is option (B).