In macroeconomics, do economists treat purchases of stocks and bonds as investment in the sense used in national income accounting?

Introduction / Context:
In everyday language, people often say that buying shares or bonds is an investment. However, in macroeconomics and national income accounting, the term investment has a more specific meaning. This question tests whether you can distinguish between financial investment and real investment as used in GDP measurement.

Given Data / Assumptions:

• The focus is on macroeconomic definitions, especially in the context of national income accounting.
• Purchases of stocks and bonds usually mean buying existing financial assets from another owner.
• We assume we are talking about secondary market trades rather than new issues used to finance capital formation.
• The question asks whether economists classify such purchases as investment in GDP calculations.

Concept / Approach:
In national income accounting, investment refers to spending on new capital goods such as machinery, factories, equipment, and new residential construction, as well as changes in inventories. Merely buying an existing share or bond from another person does not create new physical capital or additional output. It is simply a transfer of ownership of a financial asset. Therefore, such purchases are not counted as investment in the GDP sense, even though they may be called investments in everyday speech.

Step-by-Step Solution:
Step 1: Recall that in macroeconomics, investment is defined as addition to the capital stock of the economy. Step 2: Recognise that buying existing shares or bonds does not change the total amount of machines, buildings, or inventories produced in that period. Step 3: Understand that the trade of financial assets between two parties is a financial transaction, not the production of new goods or services. Step 4: Therefore, such trades are not included as investment in GDP calculations. Step 5: Select the option that clearly states that these purchases are not counted as investment in national income accounting.

Verification / Alternative Check:
If we counted every stock or bond transaction as investment, then GDP figures would be distorted by large volumes of secondary market trading that do not correspond to new production. Instead, only when firms issue new shares or bonds to finance real capital formation does the underlying spending on capital goods count as investment. The financial instrument itself is not the investment from the GDP perspective; the physical asset created is.

Why Other Options Are Wrong:
The option claiming that any purchase of a financial asset is always counted as investment confuses financial and real investment. Restricting investment to purchases from the government or to buyers that are companies does not address the basic issue that secondary market trades do not create new capital. These options misinterpret the macroeconomic concept of investment.

Common Pitfalls:
A common error is to apply the everyday meaning of investment, where buying shares or bonds is seen as investing, directly to macroeconomic questions. Candidates must remember that in national income accounting, investment is linked to the creation of new capital goods and not to financial portfolio decisions alone.

Final Answer:
Economists do not treat such purchases as investment in GDP; purchases of stocks and bonds are financial transactions and are not counted as investment in national income accounting.