Which of the following would count as capital?    a. land and other natural resources b. money used to pay salaries c. manufactured goods used to make other goods

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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In economic terms, the best answer is C.  This is sometimes confusing to beginning economics students because B sounds right given the way that we use the term "capital" in everyday life.

In economics, there are three kinds of resources or "factors of production."  There is land, which consists of all natural resources.  There is labor, which is the work done by people to make goods or services.  Then there is capital, which is defined as the machinery and other equipment that is used to make other goods.  Most textbooks explicitly state that money is not capital because it cannot be used to make other goods.  

Therefore, even though we use the term "capital" to refer to money in the everyday world, money is not capital in economic terms.  This means only C can be the correct answer.

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