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
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 answer? ›
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.
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 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 the definition and example of investment? ›
An investment can refer to any mechanism used for generating future income. This includes the purchase of bonds, stocks, or real estate property, among other examples. Additionally, purchasing a property that can be used to produce goods can be considered an investment.
What are the four most common 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.
What are the types of investment? ›
Among the top 7 types of investments are stocks, bonds, mutual funds, property, money market funds, retirement plans, and insurance policies.
What are the three types of investors? ›
What Are the 3 Types of Investors in a Business? The three types of investors in a business are pre-investors, passive investors, and active investors.
How does investment work? ›
Investing is a strategic approach to growing your wealth over time by purchasing financial assets, such as stocks, bonds or ETFs, with the goal of generating returns. Investing works by purchasing financial assets that have the potential to grow in value, while managing risk and adhering to a long-term investment plan.
Which of the following is an example of investment? ›
Stocks, real estate, and precious metals are all ownership investments. The buyer hopes that they will increase in value over time. Lending money is an investment. Bonds and even savings accounts are loans that earn interest over time for the investor.
Let's discuss the types of investments available in detail below:
- Stocks. Investments in equity markets or stocks provide avenue for wealth creation over a long period of time. ...
- Certificate of Deposit. ...
- Bonds. ...
- Real Estate. ...
- Fixed Deposits (FD) ...
- Mutual Funds. ...
- Public Provident Fund (PPF) ...
- National Pension System (NPS)
Investment is the process of investing your money in an asset with the objective to grow your money in a stipulated time period. Investment can be done in form of various investment plans such as life insurance plans, retirement plans, ULIPs, mutual fund and others.
What type of investment is best? ›
The 10 best long-term investments
- Bond funds.
- Dividend stocks.
- Value stocks.
- Target-date funds.
- Real estate.
- Small-cap stocks.
- Robo-advisor portfolio.
- Roth IRA.
Return on investment (ROI) is calculated by dividing the profit earned on an investment by the cost of that investment. For instance, an investment with a profit of $100 and a cost of $100 would have an ROI of 1, or 100% when expressed as a percentage.
Is investment good or bad? ›
Saving offers low risk and quick access to funds, while investing provides the potential for higher returns and wealth growth. Determining the right approach requires evaluation of your personal financial situation, goals, and comfort with saving and investing.
What are the three major types of investments and define them? ›
Investments are generally bucketed into three major categories: stocks, bonds and cash equivalents. There are many different types of investments within each bucket. Here are six types of investments you might consider for long-term growth, and what you should know about each.
What is investing and why is it important? ›
Investing is an effective way to put your money to work and potentially build wealth. Smart investing may allow your money to outpace inflation and increase in value. The greater growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff.
