Page 86 - Macroeconomics. book docx_Neat

Real Investment: Investment in machines, buildings, and equipment.

Autonomous Investment: Investment independent of income.

Induced Investment: Investment that depends on income or output.

Gross Investment: Total investment including depreciation.

Net Investment: Gross investment minus depreciation.

Interest Rate (r): Cost of borrowing funds.

Investment Multiplier: Ratio of change in income to change in investment.

Accelerator Principle: Theory linking investment to changes in income.

1. Meaning of Investment

In macroeconomics, investment refers to spending on capital goods that are used to

produce other goods and services in the future. Investment is not related to buying

shares or financial assets; instead, it focuses on real investment such as machines,

buildings, equipment, and tools. Investment increases the productive capacity of the
economy and plays a major role in economic growth.

2. Importance of Investment in Macroeconomics

Investment is important because it increases production capacity, creates job

opportunities, raises national income, encourages economic growth, and supports

technological progress. Without sufficient investment, an economy cannot grow in the
long run.

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