Question

Give an example of a consumption good and an example of an investment good. Explain why the two are different, as a macroeconomist would think of them differently. Also, explain why investment is important for the long term health of an economy.

Answer 1

The most common consumer goods include food, clothing, vehicles, electronics, and appliances. Consumer goods fall into three different categories: durable goods, nondurable goods, and services.

The most common Investment  goods are property, plant, and equipment (PPE), or fixed assets such as buildings, machinery and equipment, tools, and vehicles.

Both capital goods and consumer goods are a part of goods production and the difference between the two is essential to understand.

Consumer are defined as those goods which are consumed in the process of production. For example, you are a baker. You want to produce breads. For the production of breads, you require four. Hence flour is an intermediate good for you.

Capital goods are those final goods that the producer uses in the process of production. Note that, capital goods aren’t consumed entirely in one instance of production. For example, if you are producing breads, and you install machinery to kneed the dough, then machinery is a capital good.

Both are used in the process of production, but cosnumer  is entirely consumed, whereas you can't make out how much of a capital good is consumed.

Investment is important for the long term health of an economy.

1 ) The list of structural challenges facing countries around the globe is a long one. But efforts to overcome at least four – high unemployment, an aging workforce, climate change, and infrastructure deficiencies – would benefit significantly from policies promoting long-term investments.

2 ) Addressing the unemployment crisis, which has been particularly burdensome for the young, will require not only a strong recovery, but also a renewed focus on the development of skills.

3 )Investment in high-quality vocational education and training and work-based learning will be essential.

4 )Moreover, an increased focus on long-term investment will help resolve the conflicts traditionally associated with addressing climate change and building infrastructure.

5 )  In addition to immediate uncertainties, investors are being held back by a shortage of incentives and a surplus of factors that reduce returns. These include restrictive regulations that reduce firms’ ability to undertake new activities or enter new markets, especially across borders.