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Question
Answer the following question :
Explain the types of investment expenditure.
Solution
Investments refer to the addtion made in the total physical stock of capital. Following are the different types of Investment Expenditure :
(i) Financial Investment : Financial Investment refers to the investment made for the purchase of financial assets, such as shares, bonds, securities etc. It does not help in the production of goods and services directly.
(ii) Real Investment : Real Investment refers to the investment made in the production of goods and services such as machinery, tools, equipments. It is actually a net addition made to physical stock of capital.
(iii) Gross Investment : Gross Investment refers to the investment made in capital assets, buildings, raw materials, machines without deducting the amount of depreciation or capital consumption allowances.
(iv) Net Investment : Net Investment refers to the amount of investment made in capital assets like building raw material etc. after allowance has been made for depreciation. It is expressed as : Net Investment = Gross Investment – Depreciation.
(v) Autonomous Investment : Autonomous Investment refers to investment made irrespective of income, profit and rate of interest. It is income inelastic which means that it is not directly linked with profit. Such kind of investments are made by the government in the public sector, with a view to provide public utilities and to promote maximum social welfare.
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