Reply To: Government Spending and GDP


Professor Herbener, you said, “Investment counts only if it’s for assets held by the entrepreneur and used by him in production. If an auto company builds a new factory or buys new equipment, it’s included. But the tires, paint, steel, and all other intermediate capital goods the company buys are not included.”

I’m still a bit confused. If buying new equipment is included, then wouldn’t the equipment used to erect a new factory be included in “new equipment”? It just seems that it would be awfully difficult for people calculating the statistic to determine whether equipment is directly related to the function of the business or whether it is an “intermediate capital good.”