What is the addition to the stock of physical capital (such as machines, buildings, roads etc., i.e. anything that adds to the future productive capacity of the economy) called?

1. A

   Investments

2. B

   Liabilities

3. C

   Expenditures

4. D

   Savings

Appeared in: DSSSB 13 August 2024

Explanation

• In economics, 'investment' specifically refers to the creation or purchase of new physical capital.
• Physical capital includes assets like machinery, buildings, and infrastructure that are used to produce other goods and services.
• This addition to the capital stock increases an economy's future productive capacity, leading to economic growth.
• Accounting terms like 'capital expenditure' are used to describe this same process of investing in long-term physical assets.

Why Other Options Were Wrong

• Option B: Liabilities are financial obligations or debts owed to others. They are the opposite of assets and do not represent physical productive capacity.
• Option C: Expenditure is a very broad term for any act of spending. While investment is a type of expenditure, not all expenditures are investments in physical capital (e.g., spending on food is consumption expenditure).
• Option D: Savings refer to the portion of income that is not spent on consumption. While savings provide the necessary funds for investment to occur, they are not the act of creating or purchasing physical capital itself.

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Clinical Relevance

• Nursing practice connection: This is primarily an exam-oriented knowledge point with limited direct bedside application, so retain Macroeconomic Terminology: Capital Formation as background academic context rather than a clinical decision trigger.
• This is a general knowledge question relevant to the aptitude section of nursing entrance exams.
• Understanding the precise economic definitions of common words is crucial, as their technical meaning can differ from everyday usage.
• For example, in common language, buying stocks is called 'investing,' but in macroeconomics, 'investment' strictly refers to the creation of new physical capital.

How to Approach the Question

• First, break down the question to its core definition: 'the addition to the stock of physical capital'.
• Identify the key examples given: machines, buildings, roads. These are all tangible, long-lasting assets used for production.
• Evaluate each option against this specific economic definition.
• Recall or deduce that 'Investment' (or capital formation) is the precise term for creating new productive assets.
• Eliminate 'Liabilities' as they are debts, not assets.
• Eliminate 'Expenditures' as it is too general and includes consumption.

Concept Tested & Keywords

• Concept Tested: Macroeconomic Terminology: Capital Formation
• Stem keywords: addition, stock of physical capital, productive capacity, economy
• Lead-in keywords: what is... called
• Negative lead-in flag: false

Question ID

QhSrzUWXx2Y3BZ9-nPk58u

Copy ID

Reference Book

E6 Principles and Practice of NURSING Management Leadership for BSc NursingJogindra Vati — Subpart C (pp 679-1002 of 1017) pp. 103-105, 102-104