If we split the definition into its components, the first one is acquisition of productive assets, the second is their use for producing goods and services and the third is that the assets in question are new assets.

The fourth implicit in the definition is direct participation of the asset in the process of production. Not all expenditures mentioned above qualify as investment when tested on these four counts. The discussion may be yet simpler if we transform the definition into an elaborative one.

Your time is important. Let us write you an essay from scratch
100% plagiarism free
Sources and citations are provided


Get essay help

For instance, investment refers to acquisition and use of new machinery, equipment, etc., that participate directly in the process of production of goods and services. If new productive assets are only acquired but not used, the activity is called capital formation.

The instant such assets are put to their use in production of goods and services, the capital formation transforms into investment. In sum, acquisition and use of new and tangible productive assets for producing goods and services is termed as investment in the economic sense.

The magnitude of investment and the factors that affect it form the core of this chapter. Its magnitude is estimated in monetary units at a point of time. This necessitates determination of its money value at prices prevailing at the time of such estimation. Likewise, factors that influence the value of investment refer to all those determinants that tend to increase or decrease it. The chapter is devoted to such discussions only.