Distinction between gross and net investment:
Gross investment: This is the ammount that firms invest in business assets that does not account for depreciations. A depreciation is when something starts to lose value, such as how a car loses value the older it gets. If the depreciation in the value of the capital is greater than the growth in investment, then there is a decrease in the value of capital in the economy and there is no economic growth.
Net investment: This is the actual addition to the capital stock of an economy, after depreciations have been considered. Net investment = gross investment - depreciation.
Influences on investment:
The rate of eocnomic growth
- If growth is high, firms will be making more revenue due to higher rates of consumer spending. This means they have more profits available to invest.
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