This document discusses various concepts related to investment in economics. It defines real investment as expenditure that enhances production capacity, such as spending on plant and machinery. It also defines financial investment, induced and autonomous investment, private and public investment, gross and net investment, voluntary and involuntary investment. The document discusses factors that influence investment decisions like the marginal efficiency of capital and interest rates. It outlines different government policies that can be used to encourage investment, such as reducing interest rates, taxes, or using deficit financing. Overall, the document provides an overview of key investment-related terms and concepts in economics.

1. By: Simran Kaur

2. Investment, in Economics,
refers to expenditure on the
purchase of such goods which
enhance overall production
capacity in the domestic
economy. It is an expenditure on
fixed assets such as plant and
machinery or expenditure on

3. Financial
Induced
&
&
Real Investment
Autonomous Investment
Private
Gross
&
&
Public
Net Investment
Investment
Voluntary
&
Involuntary Investment

4. Financial investment refers to expenditure on the
purchase of stocks and shares of the existing
companies. It is indeed significant from the
individuals point of view as it implies an increase in
his total assets. But from the viewpoint of economy
as a whole, financial investment is of no significance,
unless it is undertaken by our residents in rest of the
world.
Real investment refers to expenditure on the
purchase of such goods which enhance overall
production in the domestic economy.

5. According to Prof. Keiser, “When an increase in
investment is due to increase in current level of
income and production, it is known as induced
investment”.

7. “Private investment refers to that investment which is
made by private individuals with the sole objective of
earning profit”
“Public investment is that investment which is made by
the central provincial or local-self government of a
country. The objective behind such an investment is
welfare of the people”

8. “The total expenditure incurred on capital goods at any
given time in an economy is called gross investment”
It includes two kinds of investments:1) Net investment 2)
Replacement investment.
“Replacement investment is that investment which
maintains intact a given stock of capital”
“Net investment is investment that enlarges economy’s
stock of real capital assets thereby adding to productive
capacity”

9. “When the entrepreneurs' make investment according to a definite
plan in order to achieve a given objective, it is called voluntary
investment”
“Involuntary investment is that investment which is
involuntarily incurred by an investor is called involuntary
investment”.

10. Investment is related to income.
Ordinarily, investment increases with an increase in
income and decrease with fall in income. It can be
expressed in the form of an equation as under:
PI=I/Y

11. (1)Average Propensity to Invest: It is the ratio of
total income and total investment .In the form of
an equation, it is expressed as:
API=Investment(I)/Income(Y)
(2)Marginal Propensity to invest: It is the ratio of
change in investment and change in income.i,e.
MPI=Change in investment/Change in Income

12. Marginal
Efficiency
of Capital
Rate of
Interest

13. Marginal efficiency of capital refers to the expected profitability by the
use of one more unit of capital. It depends upon two factors:
1.
Prospective Yield: Prospective Yield of a capital good like,
machine, means that net income which is available during
the full life-time of that machine.
2. Supply Price: Supply refers to the cost of a machine, but it
is not the cost of existing machine but that of a brand
new machine.

14. If money is borrowed from others to invest,
interest will have to be paid on it. On the
contrary, if the investors has his own money
that he uses in buying government securities,
bonds, etc. he will get regular interest on it.

16. 
Reduction in the rate of Interest

Reduction in Taxes

Increase in Government Expenditure

Price support Policy
Pump
Priming
Policy
of Wage Cut

17. Taxation
Loans
Deficit Financing

18. o
Determination of Income and Employment
oVolatile
Factor
oEconomic
Development

19. Credits:Simran Kaur
(1158)