May 22, 2024

Drevo Poznaniya

Make Fun of Business

The Basic Principles and Facts Behind Income Determination-Concept of Investment

Investment is the expenditure on physical assets which are not for immediate consumption but for the production of consumer and capital goods and services. Investment has two related meaning, it could mean the actual production of real capital in economic theory such as building of new factory, purchase of new vehicles, etc. And it could also mean in financial term, the deposit of money in bank, purchase of stock or government securities etc.

Factors which determine investment include the following:

1. Savings: The amount of money saved determines, to a large extent, the level of investment.
2. Level of income: The higher the income earned, the higher the level of investment and vice versa.
3. Rate of taxaton: Higher taxation on one’s income reduces investment and vice versa.
4. Interest rate: High interest rate charged by banks discourages borrowing, which leads to low investment while low interest rate encourages borrowing leading to high investment.
5. Future expectation: When an investor expects a brighter future, this will encourage him to invest.
6. Business atmosphere: Investors are more interested in investment in a stable economy than those with economic instability
7. Changes in technology: The level of investment is greatly influenced by changed or improvements in techniques of production through inventions and innovation.
8. Changes in level of consumption: A high level of consumption generally leads to low investment and vice versa.
9. Profit earned: high profits earned by individuals or firms do encourage investment while low profits discourages it.
10. Political climate: Investment thrives in a politically stable environment while investment is reduced in places with political instability.

The various forms or types of investment are: the individual investment, the corporate investment and the government investment. The individual investment is the type embarked upon by a household or an individual in order o increase his income and raise his standard of living. Asides his salary-pay job, he could have an agricultural investment where he sells poultry and poultry products, fish, cattle and diary products; or could invest in motor vehicles or real estate etc. Corporate investment on the other hand includes investments by companies and other organizations with the sole aim of making profits. Examples include investment on plants and machinery, buildings etc. Government investment is setting up of corporations with the sole aim of providing essential services rather than making profits, eg. provision of electricity, water, health care services etc.