Investment

What is investment?

• Total money spent by firms on assets they'll use to produce goods (a.k.a capital goods)
• Makes up 15% of AD in the UK
• Gross investment is the total investment spending
• Net investment accounts for only the investment that increases productive capacity, so gross investment - capital depreciation
• Depreciation is the fall in the value of capital as it wears out and becomes less efficient which causes an outwards shift of PPF and economic growth
• Investment is an injection into the circular flow of income so it creates a multiplier effect but some goods are imported which is a leakage from the circular flow of income
• Investment increases AD by more than the size of the investment

What affects investment?

• Risk: if there's a high risk…