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Investment Spending

Definition

Investment spending refers to expenditures made by businesses and individuals on capital goods such as machinery, equipment, and buildings. It is one of the components of aggregate demand and contributes to economic growth.

Analogy

Think of investment spending as planting seeds in your garden. By investing in new tools, equipment, and infrastructure, businesses are sowing seeds for future growth and productivity.

Related terms

Capital Goods: Capital goods are physical assets used by businesses to produce other goods or services. Examples include factories, vehicles, and technology.

Gross Domestic Product (GDP): GDP measures the total value of all final goods and services produced within a country's borders during a specific period. Investment spending is one component used to calculate GDP.

Business Cycle: The business cycle refers to fluctuations in economic activity characterized by periods of expansion (growth) and contraction (recession). Investment spending tends to be influenced by changes in the business cycle.