2.2.3: Investment

• Investment: Purchase of capital goods which can be used to make consumer goods in the future
• Depreciation: Value of capital stock that decreases in value over time as it is used up
• Gross investment: Investment before depreciation
• Net investment: Gross investment - depreciation
• Private sector investment: Investment by firms in the private sector
• Public sector investment: Investment by the government, often in infrastructure
• Foreign direct investment (FDI): Investment made by a company based in one country in another country
• Firms invest in order to expand their business and increase output
• Firms invest to increase efficiency and productivity through technological improvements
• Factor influencing Investment: Lower interest rates reduce reward for saving and cost of borrowing, increasing Investment
• Factor influencing Investment: Higher confidence in the economy and their own sales increases Investment
• Factor influencing Investment: Businesses will invest more if there is new technology available, in order to keep up with competition
• Factor influencing Investment: If corporation tax increases, Investment will decrease
• Effect of Investment: Injects money into the circular flow of income
• Effect of Investment: Boosts short run and long run economic growth
• Effect of Investment: Increases competitiveness of a country
• Effect of Investment: New capital increases productivity
• Animal spirits: Waves of emotion that impact investment greatly