Investment 2.2.3

continued on 4/11/24

Investment definition (overall)

The addition to the capital stock of the economy i.e factories, machines, offices and stock of materials used to produce other goods

What are savings investment

Savings represent the total amount of income tat is not consumed by households businesses or the government

What is capital investment

Capital invest is spending on machinery equipment, factories, technology and infrastructure to create new capital goods

Calculation for net investment

Net investment = gross investment – capital depreciation.

What is gross investment?

Gross investment is total investment on new capital inputs. It is the total amount that the economy spends on new capital goods

What is net investment

Gross investment - capital consumption (depreciation). Some new investment is needed each year to replace worn out machinery

What is a margin

A possible point of change

What is the marginal efficiency of capital

The rate of return a business expects to earn from an additional unit (hence the margin) of capital given the cost of the capital.

What is the accelerator theory

This theory states that the level of investment depends on the rate of change of national income.