Investment Demand

Definition

Investment demand refers to the desire of businesses and individuals to invest their money in capital goods such as machinery, equipment, and buildings. It represents the demand side of investment in an economy.

Analogy

Imagine investment demand as a person's appetite for buying new gadgets and tools. Just like how someone might want to invest their money in purchasing the latest smartphone or upgrading their computer setup, businesses also have a desire to invest in capital goods that can enhance productivity and generate future profits.

Related terms

Capital Goods: Capital goods are physical assets used by businesses to produce other goods and services. They include machinery, equipment, vehicles, buildings, etc.

Interest Rate: The interest rate plays a crucial role in determining investment demand. When interest rates are low, it becomes cheaper for businesses and individuals to borrow money for investments.

Business Confidence: Business confidence refers to the level of optimism or pessimism that businesses have about the future state of the economy. Higher business confidence often leads to increased investment demand.