Updated: Aug 20, 2021

Strictly defined, investment is expenditure on real capital goods. However, in everday language, it is also taken to mean purchase of any asset, or indeed the undertaking of any committment, which involves an initial sacrifice folowed by subsequent benefits. For example, one may speak of the purchase of an ordinary share or the decision to go to university as an investment. However, in the therory of income determination, investment means strictly expenditure on capital goods. In this sense, investment is the amount by which the stock of capital of a firm or economy changes, once we have allowed for replacement of capital which is scrapped.

Reference: The Penguin Dictionary of Economics, 3rd edt.

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James Knight
Editor of Education
James is a lead content editor for Invezz. He's an avid trader and golfer, who spends an inordinate amount of time watching Leicester City and the… read more.