What is Investment?

An investment is an asset or item accrued with the goal of generating income or recognition. In an economic outlook, an investment is the purchase of goods that are not consumed today but are used in the future to generate wealth. In finance, an investment is a financial asset bought with the idea that the asset will provide income further or will later be sold at a higher cost price for a profit.

Investment is elucidated and defined as addition to the stockpile of physical capital such as:

  • Machineries
  • Buildings
  • Roads etc.,

i.e. anything that sums up to the future productive ability of the economy and changes in the catalogue (or the stock of finished commodities) of a manufacturer. Note that investment commodities (such as machines) are also part of the final commodities – they are not intermediate commodities like raw materials. Machines manufactured in an economy in a given year are not ‘used up’ to produce other commodities but yield their services over a number of years.

Investment decisions by manufacturers, such as whether to buy a new machinery, rely to a large extent, on the market place rate of interest. However, for simplicity, we presume here that enterprises plan to invest the same amount every year. We can write the ex ante investment demand as:

I = ī

Where as, ī is a positive constant which represents the autonomous (given or exogenous) investment in the economy in a given year.

The above mentioned is the concept that is explained in detail about Investment for class 12 Macroeconomics. To know more, stay tuned to BYJU’S.