INVESTMENT FUNCTION

INVESTMENT EXPENDITURE

Is a capital expenditure on the purchase

of physical assets such as plant,
machinery and equipment.
A component of aggregate demand and
an injection into the circular flow of
national income.
 CONSUMPTION EXPENDITURE

Is spending on current consumption or

consumption of nondurable goods.
INVESTMENT EXPENDITURE

Is spending on capital goods which

are repeatedly used and gradually
consumed over a long period of time
as in durable goods.
DIVIDED INTO TWO

GROSS INVESTMENT
• The total amount of investment that is undertaken
by an economy over a specified period of time

NET INVESTMENT
• Gross investment less replacement investment of
capital consumption
INVESTMENT AND OUTPUT

CAPITAL STOCK – is the net

accumulation of a physical stock of
capital goods such as buildings, plant,
machinery, equipment, etc by a firm,
industry or economy at any one point in
time..
 Investment that is greater than depreciation
will bring about positive net change or
increase in capital stock and total output.
 Zero or net change means a constant level in
both capital stock and total output.
SAVINGS AS SOURCE OF INVESTMENT

 Savings is the unspent portion of a person’s,

company’s or institution’s income during the
period intended for spending as in the case of
salaried employee who sets aside portion of his
hal-month pay earmarked for the next fifteen
days or for emergency expenses,
S=Y-C

Where:
S = saving
Y = income
C = consumption
DETERMINANTS OF SAVINGS

Price level
Population growth
Taxes
Interest rate
INVESTMENT DEMAND DETERMINANTS

Interest rate is the particular amount of

interest which a household or business
is required to pay to a lender for
borrowing a particular sum of money to
finance spending on consumption and
investment.
ACCELERATION OF PRINCIPLE

The level of investment is a

function of desired changes in
output.
INNOVATIONS – can create demand
of products including capital goods
and usher the acceleration process
between income and investment.
PROFIT – is the basic
reason why a business
invest.
EXPECTATION