2.2.3 - Investment

• Investment is the addition of capital stock to the economy i.e. machines and factories used to produce other goods and services
• Gross investment is the amount of investment carried out and ignores the level of depreciation
• net investment is gross investment minus the value of depreciation
• Influences on investment:

  • Interest rates: Most investment is done through borrowing. High interest rates mean that borrowing is more expensive, so a business needs to be more confident of good profits in order to cover the extra costs of borrowing
• Influences on investment:

  • Rate of economic growth: In a growing economy, there will be higher levels of investment as businesses would be more confident about their investments and the higher demand would lead to a higher return rate on the investment
• • Low interest rates can reduce the cost of borrowing for businesses, making investment projects more attractive.
  • Higher interest rates can discourage investment due to increased borrowing costs
• • The availability of credit, including loans and lines of credit, can impact a firm's ability to finance investment projects.
  • During credit crunches, businesses may face difficulty obtaining funds for investment.