Net investment

economic-dictionary

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

Investment in the economy involves what is called capital formation. Therefore, in the economic sphere, the term investment has a different meaning from the one commonly assigned by families as an economic agent.

In this sense, generally for families, the concept has a simply financial connotation. Since they consider investment to any acquisition of titles, 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 called in economics as fixed investment. This goes in the sense that it represents lasting assets in the economy for a long period. They actually constitute what is known as gross capital formation. So named since it includes the replacement expense for wear and tear suffered by capital goods.

Thus, investment in the economy is the process of sustaining and increasing production, thus necessitating the replacement of spent capital, 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 assets that will be used for the creation or transformation of other assets. 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.

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