Investment
Definition. Investment is spending by firms on capital goods such as machinery, equipment, factories and new technology, plus additions to inventories, that adds to or maintains the economy stock of productive capital. As a component of aggregate demand, it depends on interest rates, business confidence and expected returns.
Investment is interest-rate sensitive, so it is a key channel through which monetary policy works in economies that target interest rates. Higher rates raise borrowing costs and lower expected profitability, reducing investment.
This term belongs to Monetary Policy in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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