Which of the following is classified under investment spending?

Investment spending refers to the expenditure on capital goods that will be used for future production. This includes spending on machinery, equipment, and structures that contribute to enhancing a firm's or an economy's productive capacity.

Purchasing new machinery is a classic example of investment spending. When a business replaces old machinery, it is typically investing in new capital that can lead to greater efficiency, higher production capacity, and potentially more revenue in the future. This type of spending directly contributes to the productive capabilities of a firm and is classified as gross private domestic investment in national accounts.

While buying a new home may seem like it would fall under investment spending, it’s important to distinguish that in economic terms, residential investment is treated differently from business investment. Similarly, purchasing stocks represents a transaction in financial markets and does not constitute investment spending in the economic sense since it does not directly contribute to production. Government transfers, on the other hand, are not expenditures on capital goods and do not produce immediate economic returns in terms of production. Therefore, the act of replacing old machinery is clearly defined as investment spending within economic frameworks.