Definition: Investment, Investor and Savings

In economics, the definition of investment is quite strict.

  • Investment means an increase in the capital stock – Gross fixed capital formation.

When we buy shares or put money in the bank. This is not seen as investment, it is seen as a mere transfer of ownership – there is no increase in the productive capacity of the economy. Therefore ‘investing’ money in the bank is properly known as saving.

Financial Investment

  • In common terminology we refer to ‘investing money’ in a bank. It is better to refer to this as ‘financial investment’ to avoid confusion.

Investor

  • An investor is someone who increases the capital stock, or engages in ‘financial investment’

Definition of Saving

Saving is income that is not consumed. It could be money put in a bank or saved in cash.

By on January 3rd, 2008

4 thoughts on “Definition: Investment, Investor and Savings

    1. Saving refers to left-over income after spending on Consumption goods,which satisfy our wants directly. Investment refers to spending on Capital goods,which are capable of aiding the productive process to augment future production of goods.Since Saving and Investment are done, by and large, by different sections of people in a modern economy, in the ex-ante or planned sense they are more likely to be unequal. However, in ex-post or realised sense they are always equal. They are brought into equality by the equilibrating mechanism of interest rate and/or income.

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