2.2.3 investement (I)

What is investment?

The addition of capital stock in the economy, such as machines and factories, used to produce goods and services.

What is gross investment?

Total spending on new capital goods without accounting for depreciation.

What is net investment?

Gross investment minus depreciation, showing the actual increase in capital stock.

Why is the distinction between gross and net investment important?

Because capital depreciates over time, so net investment shows the real increase in productive capacity.

How does economic growth affect investment?

Higher economic growth increases demand and expected profits, encouraging firms to invest more.

What is the accelerator effect?

The idea that investment depends on the rate of change of income, so rising demand leads to increased investment.

How do business expectations affect investment?

If firms are optimistic about the future, they are more likely to invest, while pessimism reduces investment.

What are “animal spirits”?

A Keynesian term describing business confidence and optimism that influences investment decisions.

How does demand for exports affect investment?

Higher demand for exports increases sales, encouraging firms to expand capacity and invest more.

How do interest rates affect investment?

Higher interest rates increase the cost of borrowing and reduce investment, while lower rates encourage investment.

How does access to credit affect investment?

Easier access to credit increases investment, while restricted credit reduces investment.

How can government policies affect investment?

Tax cuts and subsidies can increase investment, while regulations and planning restrictions can reduce it.

How do retained profits affect investment?

Higher retained profits provide internal funds, making firms more able to invest without borrowing.

How does technological change affect investment?

New technology increases efficiency and profitability, encouraging firms to invest.

How do costs affect investment?

Higher costs reduce profits and the rate of return, leading to lower investment.