Investment refers to net capital formation. It involves the creation of additional stock of capital. It is the expenditure made on goods not meant for current consumption. Saving are made by the public (households) and Investments are made by business firms.
DETERMINANTS OF INVESTMENT
(a) Expectation of future profits
(b) level of Income
(c) Level of savings
(d) Rate of interest
(e) Government influence
(f) attitude towards risk.
EQUILIBRIUM LEVEL OF NATIONAL INCOME
The equilibrium level of national income is attained when a desired savings of the public is equal to-the desired Investment of the business sector.
THE MULTIPLIER
The multiplier is defined as the ratio of the change in National income to the change in investment that brought it about. It is the number of times the National income is multiplied as a result of a change in investments. It tells us that any change in investment will multiply or change the level of national Income in a certain proportion.
