Investment Theories and Applications
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Questions and Answers

What is the definition of real investment?

  • The purchase of new capital to produce goods and services (correct)
  • A form of financial savings
  • The shrinking of the economy's stock of capital
  • The purchase of existing shares and bonds

    • What distinguishes financial investment from real investment?

  • It decreases the stock of capital
  • It involves the change of ownership of existing assets (correct)
  • It measures the total amount incurred on new capital goods
  • It involves the creation of new capital goods

    • How is net investment calculated?

  • Gross investment - depreciation (correct)
  • Depreciation - gross investment
  • Depreciation + gross investment
  • Gross investment + depreciation

    • What happens when depreciation exceeds gross investment?

    <p>The economy's stock of capital is shrinking</p> Signup and view all the answers

    Which of the following is a correct statement about investment?

    <p>Investment increases the stock of capital</p> Signup and view all the answers

    What does gross investment refer to?

    <p>The total amount incurred on the acquisition of new capital goods</p> Signup and view all the answers

    Study Notes

    Investment in Economics

    • Investment refers to the purchase of new capital used to produce goods and services, resulting in an increase in the physical stock of capital.

    Types of Investment

    • Real investment: involves the addition of new capital, leading to an increase in production, employment, income, and buying of capital goods.
    • Financial investment: involves the buying of existing shares and bonds, which is a form of savings and only a change of ownership of assets, not the creation of new capital assets.

    Investment and Capital Stock

    • Investment increases the stock of capital, unlike depreciation which decreases it.

    Measures of Investment

    • Gross investment: the total amount incurred on the acquisition of new capital goods.
    • Net investment: the difference between gross investment and depreciation (net investment = gross investment - depreciation).

    Impact of Investment on Economy

    • If depreciation exceeds gross investment, the economy's stock of capital is shrinking.

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    Description

    Understanding investment in economics, including real investment and financial investment, and their effects on production, employment, and income.

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