2.2.3 Investment (I)

Question 1

What is Gross Investment?

Answer 1

Gross investment refers to the total spending on capital goods (e.g., machinery, buildings, technology) before accounting for depreciation.

If the depreciation is bigger than the growth in gross investment then the value of capital goods is declining and there is no economic growth.

Question 2

What is Net Investment?

Answer 2

This is the ACTUAL addition to the capital stock of an economy, after depreciations have been considered to gross investment.

Question 3

What are the key influences on investment?

Answer 3

• Rate of economic growth- if high -> firms make more profits -> more capital to reinvest.
• Business Confidence - Animal Spirits.
• Demand for Exports
• Interest Rates
• Access To Credit
• The influence of Government and Regulations