Investment in macroeconomics refers to gross private domestic investment. This pertains mainly to business spending, as opposed to consumer spending. Economic investments are the investments made by businesses to drive their production. In theory, these investments tend to be solely based on the input side of production. When economists use the word 'investment,' they're not referring to financial investments such as 401-K's and stock or bond purchases. They are referring to business activities within the economy that lead to the production of other goods and services. Investment is the value of all goods and services produced for use in the production of other goods.
Characteristics of economic investment pertain to how they're made when they're made, and scope:
- How: Economic investments are made via the purchase of real assets like labor, land, or production machinery
- When: Most commonly, the biggest portion of economic investment is made during the startup stages of a business when all the needed assets need to be bought
- Scope: The scope of economic investment pertains to the size of the business
As with any investment, economic investments have no guarantees. The purchase of brand-new machinery doesn't fully guarantee increased efficiency as the machine could break down. Similar to the acquisition of new labor - it's never a 100 percent certainty that the newly hired employee will perform at the required level. The only way to ensure the effectiveness of economic investment is through a detailed study of markets, products, and the company's own needs. Economic investments do not have a speculative element to them. They aren't normally made with the notion that the asset in question will be sold off later for a profit.
Investment vs. Economic Investment
There are distinctions between investments (also known as financial investments) and economic investments. These distinctions relate to the assets they invest in, their goals, their range, and the types of companies that make them.
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