Chapter 17, Problem 1DQ

To determine

Given scenarios represent the economic investment or financial investment.

Explanation of Solution

Susan is making a financial investment because she simply exchanges her asset with an existing asset in order to have some expected financial gains. There is no addition or replacement of capital stock.

On the other hand, New York City is making economic investment because it is issuing bonds for raising money in order to pay for the new tunnel linking New Jersey and Manhattan. There is simply addition of new capital stock in the form of new tunnel (linking New Jersey and Manhattan).

Economics Concept Introduction

Concept introduction:

Economic investment: This type of investment includes new addition of capital stock or replacement of the capital stocks that has been worn out.

Financial investment: This type of investment includes either purchasing an asset or building an asset in order to have some expected financial gains.