Investment (I)
Spending by firms on capital goods to increase productive capacity.
Investment
Key definitions
Gross investment
Total capital spending before depreciation.
Net investment
Gross investment minus depreciation.
GFCF
Gross fixed capital formation — plant, machinery, buildings.
Animal spirits
Keynes: unpredictable business confidence affecting I.
Accelerator
Investment depends on expected change in demand.
Interest rate effect on I
Higher rates raise cost of borrowing → lower I.
Crowding out
Higher G raises interest rates and may reduce private I.
Productivity link
Investment raises capital per worker.
Investment demand curve
Shows inverse relationship between interest rate and I.
Key concepts
I is volatile and pro-cyclical.
Government grants and tax breaks can shift investment.
Relevant tips
- Diagram backlog: investment demand curve vs interest rate.