(a)

"Machine purchased by a firm is always a capital good."

(a)

Do you agree with the given statement ? Give valid reasons for your answer.

(b)

Define the following :

(i)

Net Exports

(ii)

Externalities

(iii)

Problem of Double Counting

No. Capital goods are those final goods which help in the production of other goods and services. A machine purchased by a firm will be a capital good when it is used for the production of other goods and services. However, if it is purchased by a firm for resale purposes in the same year, it will not be considered as a capital good.

Net Export refers to the excess of the value of exports of goods and services over the value of imports of goods and services of an economy, during an accounting year.

Externalities refer to benefits (positive externalities)/ harms (negative externalities) which are caused by one entity to another without being paid/ penalised for it.

Problem of double counting refers to the counting of the value of a good or service, more than once in the estimation of national income.