Investment
is an important determinant of the Aggregate demand and thereby of the level of
income, output and employement.Investment is taken in the sense of real
investment.
Investment
refers to that part of the aggregate output which takes the form of new plants,
new capital equipments and machinery, new structures (factories, office
building, residential houses etc.) and addition to business inventories (stock
of goods).
Private and
Public Investment
Private
Investment:
It
refers to expenditure by private investors on the purchase of such goods which
add to their stock of capital.
Investment implies increase in the stock of
capital, also called Capital Formation.
Rate
of interest is the principal determinants of private investment.
Higher rate of
interest generally implies lower investment expenditure.
Investment
in private sector is motivated solely by profit motive.
Public
Investment:
Investment
undertaken by the government is known as public investment.
The government often
invest in projects like road, dams, schools, colleges, housing etc.
Public
investment is largely motivated by public welfare.
