Confused, What is Investment, its types and definition in National Income chapter of Macroeconomics class 12 CBSE, ISC and State Boards
In this lecture, I will discuss the concept of Investment as given in the National Income chapter of economics class 12 CBSE Board.
What we study here, is what is considered as an investment in economics.
Addition made to the stock of capital during a period is called investment.Book, S.K Aggarwal
Example of Investment
Let’s assume capital at the beginning of the accounting year is ₹ 5000. During the year, the owner further invests ₹ 7000 in the business. Thus capital at the end of the accounting year is ₹ 12000.
In the above example. As per the economics, only ₹ 7000 is considered as the investment.
Thus, according to the definition of investment. Investment is just the addition to the present stock of capital during the year.
Difference between Capital and Investment
Capital vs Investment
|The Capital Goods added to this capital during the year, is called investment||The accumulated stock of Capital goods at the beginning of the year is called capital|
Note:- Capital & Investment consist of Capital Goods
Types of Investment
Fixed and Stock Investment
Investment in fixed capital is called fixed investment i.e. machinery, furniture, etc.
Investments in stock of raw materials, semi-finished goods, and finished goods stock investment. i.e. goods to be sold.
Examples of Investment
Investment is assumed to be made only by the producer, not by the consumer at all.
Examples of fixed investments are machinery, furniture, building, etc.
Examples of Stock investment are raw material, semi-finished goods, and finished goods.
What is Gross Investment
Gross investment is an addition to the stock of capital before making an allowance for depreciation.
What is Net Investment
The actual addition made to the capital stock of the economy in a given period is termed as Net Investment.
Net Investment = Gross Investment – Depreciation
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