Investment Man Made

Investment Man Made

Investment. (a) Man-made assets which are used in the production of consumption or of further investment goods. Economic analysis is facilitated by dividing the annual output of goods and services into consumption goods and investment goods (also called capital or producer goods). Consumption goods and services satisfy consumers' wants directly; such satisfaction is the object of economic activity. Investment is the use of factors of production to produce capital goods to satisfy consumer wants indirectly but more fully in the future.

Factors of production are used to produce a gross output ('gross domestic product'). The capital assets employed are subject to wear and tear and must be maintained or replaced; and some equipment becomes obsolete because of changes in production methods. The deterioration in the income-producing capacity of capital is called 'capital consumption', i.e. it is the amount of capital 'eaten up' in the course of producing goods or services. If the value of the stock of capital is to be the same at the end of the production period as at the beginning, factors of production must be employed to make good the capital consumed. This process is called maintaining capital intact'. To ensure economic progress, most countries invest more resources in capital goods than are required to replace capital consumption. The deduction of capital consumption from total or 'gross' investment gives 'net' investment the net addition to the stock of capital during the period. (Making the same deduction from gross domestic product yields the net domestic product.)

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