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Economics notes

Economic ba llb sem 1 imp topics

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1 views8 pages

Economics notes

Economic ba llb sem 1 imp topics

Uploaded by

Amrita
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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INVESTMENT

UNIT-2
INVESTMENT

 An investment is an asset or item accrued with the goal of


generating income or recognition. In an economic outlook,
an investment is the purchase of goods that are not
consumed today but are used in the future to generate
wealth.
 In finance, an investment is a financial asset bought with
the idea that the asset will provide income further or will
later be sold at a higher cost price for a profit.
 It refers to the expenditure incurred by producers on the
purchase of capital goods such as machinery, plant, etc.
TYPES OF INVESTMENT

Autonomous Investment

It refers to the investment which is made irrespective of


income level. Instead of profit maximisation, it is made for
social welfare. In general, it is made by the government.
While autonomous investment is not influenced by the
change in the level of income, output, profit and sale.
Autonomous investment is commonly linked with the
determinants like new resources, population growth,
increase in labor force, technological innovations, etc.
Induced investment

 Induced investment is the type of investment which is


associated with the current, income, output, sales and
profit.
 It refers to the investment which is made to earn
profits. It is directly affected by a change in the income
level.
 Induced investment is profit or income motivated.
Factors like prices, wages and interest changes which
affect profits influence induced investment. Similarly
demand also influences it. When income increases,
consumption de-mand also increases and to meet this,
investment increases
Graph-
Net v/s Gross Investment

Net investment Gross investment

 Net Investment is the actual  Gross Investment is the total


expenditure done for addition expenditure done for buying
to the capital stock or buying capital goods or adding to the
capital goods over a time capital stock over a time period,
period taking into consideration with counting depreciation.
the impact of depreciation.  Gross investment is calculated
 Net investment is calculated by by calculating the total
subtracting depreciation from expenditure done on acquiring
the gross investment. capital goods.
  Considers depreciation for
Does not consider depreciation
for determining final value determining final value
Determinants of Investment-
 1. Marginal Efficiency of Investment (MEI):
 MEI is the expected rate of return from an additional investment.
The following two factors are required to determine MEI:
 Supply Price: It is the production cost of a new asset of that
kind. Simply put, the supply price is the price at which one can
supply or replace the new capital asset. For example, if old
equipment is replaced by equipment of ₹20,000, then ₹20,000 is
the supply price.
 Prospective Yield: It is the net return or net of all costs, which
is expected from the capital asset over its lifetime. For
example, if the equipment of ₹20,000 in the previous example
is expected to yield receipts of ₹2,500 and the running expenses
will be ₹500, then the prospective yield will be ₹2,500 – ₹500 =
₹2,000.
 MEI= 2000/20000 *100= 10%
 2. Rate of Interest (ROI):
 It is the cost of borrowing money for
financing investment. There is an inverse
relationship between ROI and the volume of
investment. If the Rate of Interest is high,
then the investment spending will be less
and if the Rate of Interest is low, then the
investment spending will be more.

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