INVESTMENT

Whatever is produced during a year is not generally acquired for consumption in that year. Why is it so that generally production exceeds consumption during a year? This is due to the following reasons:(a) Goods lying with production units:-All goods before reaching the users as finished goods undergo a number of processes. For example, the clothes that we wear, have reached us after undergoing many processes such as converting cotton into thread, then weaving it into cloth, then stitching it into clothes and then sending it to the shopkeeper for selling them to us, the users. All these processes are like pipelines and in each of these pipelines there are goods known as raw material and semi-finished goods. Unless there is a stock of raw material and semi-finished goods at each stage of production, the next stage of production will be held up.In addition, the producers have to keep some stock of finished goods ready in anticipation of demand from the market. So a part of the production of the year is used up in building stock of finished and semi-finished goods and raw material with the production units. This represents one component of total production of the year which is not used for consumption.(b) Durable use goods acquired by the production unit:-Production units make investment in fixed capital goods like new machines, equipment, vehicles, buliding etc. duirng the year. These are duarble use goods. This is another component of production of the year not used for consumption during the same year.Production of a year exceeds the consumption of that year on account of the above two reasons. This excess of production over consumption equals investment. The two components responsible for the excess are (i) Investment in stock and (ii) Investment in fixed capital goods.Difference between both of them has already been published . So kindly consider them.