Importance of investment for an economy

  • Investment is a means and tools by which the Government tries to mobilise required funds (resources) to promote the different goals of planned development
  • The level of income, output and employment in an economy depends upon effective demand, which, in turn, depends upon expenditures on consumption goods and investment goods (Y= C + I)
  • Investment is a component of aggregate demand; changes in investment shift the aggregate demand curve by the amount of the initial change times the multiplier
  • Investment changes the capital stock; changes in the capital stock shift the production possibilities curve and the economy’s aggregate production function