In the context of the budget, which of the following statements is correct regarding capital expenditure?
I. It does not create physical or financial assets.
II. Acquisition of machinery is an example of capital expenditure.
- AOption (a)
Only ।
- BOption (b)
Only II
- COption (c)
Both I and II
- DOption (d)
Neither I nor II
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Correct answer
Only II
Why this answer is correct
The correct answer is Only II.
Key Points
- Capital expenditure refers to spending that creates or increases long-term assets.
- It adds to the productive capacity of the economy.
- It results in physical or financial assets for the government or economy.
- It is part of the capital budget.
Additional Information
- Says: “It does not create physical or financial assets”
- Wrong because capital expenditure always creates assets such as:
- Roads, bridges, railways
- Schools, hospitals
- Machinery, equipment
- So, it directly increases national productive capacity.
- Promotes economic growth and development
- Helps in infrastructure expansion
- Increases productive capacity of the economy