If a company buys a robot, it's part of investment. If a person buys a car, it's part of consumption. Why?

Question

As I understand it, a company buying a robot -- something that depreciates over time and will eventually break -- is included in investment because it provides a long term benefit (increase in GDP). But then why is a car considered consumption? It also depreciates over time (though not in a year) and provides long term benefits to GDP.

Answer 1

Good question! Economists frequently have different definitions for terms than those used in business and everday life. For GDP purposes, all spending by businesses on equipment that will be used for future perods is considered investment. However, all purchases of goods by individuals are considered consumption by economists, regardless of whether the purchases are for items that will provide a long-term benefit or not.

The purchase of a gallon of gas and a car by an individual are both considered consumption for GDP purposes.