Investment is an important tool of the theory of income and employment. In common parlance, investment means purchase of shares, bonds and securities, saving deposits with banks and other non-banking financial intermediaries. But, this is transfer of ownership of ‘paper title’ or ‘financial investment’. It does not add to the stocks of physical assets.

In Keynesian terminology, investment refers to the acquisition and increase in the real assets. Investment expenditure in real assets may include the following:

(i)    Purchase or production of new machinery, plant, equipment, etc.

(ii)    Creation of new physical assets such as roads, airports, dams, canals, power generation plants, trucks, railway tracks and engines, etc.

(iii)    Inventory building, i.e., stocks, of raw materials, semi-finished goods, unsold final goods, etc.

In brief, investment in macroeconomic analysis refers to that part of the aggregate output for any given time period which takes the form of new structures, new capital equipment and changes in the business inventories. Investment function, thus, explains the relationship between investment and its determinants.

For more help in Investment click the button below to submit your homework assignment