Net investment

Net investment is a term used in macroeconomics , this reflects the capital increase after reducing the depreciation of the period.

Investment in economics involves what is called capital formation. Therefore, in the economic field, the term investment has a different meaning than that commonly assigned by families as an economic agent.

In this sense, for generally for families, the concept has a simply financial connotation. Since they consider investment to any acquisition of securities, mortgages, bonds, etc. However, the economy does not consider them that way. This in economic science simply represents a transfer of financial assets, in reality this does not constitute a real capital formation,

The set of goods destined to the production of other goods is denominated in economy as fixed investment. This goes in the sense that it represents enduring goods in the economy for a long period. They actually constitute what is known as a gross capital formation. So named since it includes the replacement cost for wear and tear suffered by capital goods.

So, investment in economy, is the process of sustaining and increasing production, thereby needing to replenish the capital spent, in addition to increasing it.

Net capital formation

The production activity constantly demands the increase of the component that is dedicated to the production of new goods and services. Specifically, the part called capital. The investment represents the creation and acquisition of goods that will be used for the creation or transformation of other goods. So, in mathematical terms, the net investment will be equal to:

Net investment = Gross investment – depreciation

Gross investment = Net investment + depreciation

The part called depreciation is the replacement of capital spent on production.

by Abdullah Sam
I’m a teacher, researcher and writer. I write about study subjects to improve the learning of college and university students. I write top Quality study notes Mostly, Tech, Games, Education, And Solutions/Tips and Tricks. I am a person who helps students to acquire knowledge, competence or virtue.

Leave a Comment