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Q. What do you meant by Investment?
When we use the word investment, we characteristically mean 'gross investment'. Fundamentally, gross investment comprises all finished goods which we have produced though not consumed. The significant parts of gross investment are gross fixed investment and changes in inventories.
Gross fixed investment is total amount of investment in fixed capital. If a firm produces more than it sells in a certain period of time, its inventory will increase. This would be counted as a positive investment. Similarly we will have a negative inventory investment whenever inventories decrease.
By net investments we mean gross investments minus depreciation such that actual increase in amount of capital between two periods in time is equal to net investment during this period. Keep in mind that whereas capital is a stock, investment is a flow. We may talk about a firm's total amount of capital at a certain point in time and a firm's total investment over a period of time.
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