What is Investment?
An investment is an asset or item accrued with the goal of generating income or recognition. In an economic outlook, an investment is the purchase of goods that are not consumed today but are used in the future to generate wealth. In finance, an investment is a financial asset bought with the idea that the asset will provide income further or will later be sold at a higher cost price for a profit.
Investment is elucidated and defined as an addition to the stockpile of physical capital such as:
- Machinery
- Buildings
- Roads etc.,
i.e. anything that sums up to the future productive ability of the economy and changes in the catalogue (or the stock of finished commodities) of a manufacturer. Note that ‘investment commodities’ (such as machines) are also part of the final commodities – they are not intermediate commodities like raw materials. Machines manufactured in an economy in a given year are not ‘used up’ to produce other commodities but yield their services over a number of years.
Investment decisions by manufacturers, such as whether to buy new machinery, rely to a large extent, on the market place rate of interest. However, for simplicity, we presume here that enterprises plan to invest the same amount every year. We can write the ex-ante investment demand as:
I = ī
Whereas, ī is a positive constant which represents the autonomous (given or exogenous) investment in the economy in a given year.
1 Mark Questions |
| Q.1-Define Investment. |
| Ans: It refers to the expenditure incurred by producers on the purchase of capital goods such as machinery, plant, etc. |
| Q.2-What is Autonomous Investment? |
| Ans: It refers to the investment which is made irrespective of income level. Instead of profit maximisation, it is made for social welfare. In general, it is made by the government. |
| Q.3-What is Induced Investment? |
| Ans: It refers to the investment which is made to earn profits. It is directly affected by a change in the income level. |
| Q.4-State the Determinants of Investment. |
| Ans: Marginal Efficiency of Investments (MEI) and Rate of Interest. Or Rate of Return on Investment and Rate of Interest (i.e. Cost of Investments). |
| Q.5-Out of Induced Investment and Autonomous Investment, Which One is Influenced by the Level of Income? |
| Ans: Induced investment. |
| Q.6-Will a Firm Invest, if Its Marginal Efficiency of Investment is 10% and the Rate of Interest is 15%? |
| Ans: No, because of MEI<ROI. |
| Q.7-Give the Meaning of Ex-ante Saving. |
| Ans: It refers to the savings amount of households (or savers) plan to save at different levels of Income in the economy. |
| Q.8-Give the Meaning of Ex-ante Investments. |
| Ans: It refers to the amount of money which firms plan to invest at different levels of income in the economy. |
| Q.9-What Do You Understand by Ex-post Saving? |
| Ans: It refers to the realised or actual investment in an economy during a year. |
| Q.10-Will Ex-ante Saving Always Be Equal to the Ex-ante Investment? |
| Ans: NO |
| Q.11- What Do You Understand by Ex-post Investment? |
| Ans: It refers to the realised or actual investment in an economy during a year. |
The above mentioned is the concept that is explained in detail about Investment for Class 12 Macroeconomics. To know more, stay tuned to BYJU’S.
Important Topics in Commerce:
FAQs
An investment is a plan to put money to work today to obtain a greater amount of money in the future. It is also the primary way people save for major purchases or retirement. With stocks, bonds, real estate, or commodities, individuals can create a diversified portfolio.
What is the definition of investment very short answer? ›
Divestment is the method of selling subsidiary properties, investments, or divisions to increase the parent company's value. Often known as the divestiture, it is the reverse of an acquisition which is generally achieved when the asset or division of the company does not meet expectations.
What is investment short answer? ›
In an economic outlook, an investment is the purchase of goods that are not consumed today but are used in the future to generate wealth. In finance, an investment is a financial asset bought with the idea that the asset will provide income further or will later be sold at a higher cost price for a profit.
What is investment in simple words with example? ›
The meaning of investment is putting your money into an asset that can grow in value or produce income or both. For example, you can buy equity stock of a listed company in the hopes of receiving regular dividends and capital appreciation in the form of the share price.
Which is the best definition of investment? ›
An investment is defined as putting money, time, or effort into something, be it a material or an intangible asset, with the hope that it will generate a profit or advantage in the future.
What is the easiest definition of investment? ›
What do you mean by Investment? Investment definition is an asset acquired or invested in to build wealth and save money from the hard earned income or appreciation. Investment meaning is primarily to obtain an additional source of income or gain profit from the investment over a specific period of time.
What is the meaning of investment in one word? ›
noun (1) in·vest·ment in-ˈves(t)-mənt. Synonyms of investment. : the outlay of money usually for income or profit : capital outlay. also : the sum invested or the property purchased.
What is the most common type of investment? ›
1. Stocks. Stocks, also known as shares or equities, might be the most well-known and simple type of investment. When you buy stock, you're buying an ownership stake in a publicly-traded company.
What is a good investment definition? ›
In summary, a good investment involves a blend of factors encompassing returns, risk management, liquidity, stability, alignment with goals, transparency, quality management, growth potential, cost-efficiency, ESG considerations, and adaptability to market changes.
What is investment simply? ›
Investment refers to putting your money in an asset with the aim of generating income. Financial investments come in different forms, such as mutual funds, unit linked investment plans, endowment plans, stocks, bonds and more.
In simple terms, investing is using money to try
to make a profit or produce income. Investing money is different. from saving money. Saving involves setting money aside in safe, relatively low interest paying accounts so it's there when you need it.
What is investing in your own words? ›
Investing means buying assets like stocks and bonds to grow wealth over time. Your investment amount depends on your goals and risk tolerance. Investors aim to make a profit by selling assets for more than they paid. While your investments can increase in value, returns are not guaranteed.
What is investment explaining? ›
Investing is the act of distributing resources into something to generate income or gain profits. The type of investment you choose might likely depend on what you seek to gain and how sensitive you are to risk. Assuming little risk generally yields lower returns, and assuming high risk typically yields higher returns.
Why do people invest? ›
Investing can bring you many benefits, such as helping to give you more financial independence. As savings held in cash will tend to lose value because inflation reduces their buying power over time, investing can help to protect the value of your money as the cost of living rises.
What are the 4 main investments? ›
Bonds, stocks, mutual funds and exchange-traded funds, or ETFs, are four basic types of investment options.
What are the six 6 different types of investment? ›
There are various types of investments: stocks, bonds, mutual funds, index funds, exchange-traded funds (ETFs) and options.
What are 8 types of investments? ›
What Are Some Types of Investments? There are many types of investments to choose from. Perhaps the most common are stocks, bonds, real estate, and ETFs/mutual funds. Other types of investments to consider are real estate, CDs, annuities, cryptocurrencies, commodities, collectibles, and precious metals.
How does investment work? ›
Investing is buying assets such as shares, unit trusts, or property with the expectation that your investment will make money for you. Investments usually achieve long-term goals. Investments can make your money work for you, and help you to create and preserve wealth.
