Investment in economics refers to economic activity that
forgoes consumption today, with the purpose of increasing output in the future. It
includes spending on tangible assets such as houses as well in intangible investments
such as education.
As mentioned in the answer posted above,
different authors may classify factors affecting investment decisions by individual
firms or companies in different ways. For example, the answer above lists five such
factors. However, economists studying nature of investment in general independent of
specific industry, country, or time classify all these factors in three groups. These
are:
- Demand for output produced by the new
investment. - Interest rates and taxes that influence the
cost of new investment. - Business expectations about the
state of economy.
Whether a person is
pessimistic or optimistic about future profits from the investments will very much
depend about his or her assessment of the above three
factors.
If I had to choose only two of the above three
factors, I will opt for the second and the third ones. This is because the first factor
- demand for output produced by the new investment - can also be considered to be a
part of third factor. This is because demand of output is substantially influenced by
state of economy.
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