An example of business fixed investment spending is?

Wondering what an example of business fixed investment spending is? Fixed investment refers to investment in fixed capital as well as to the replacement of depreciated fixed capital. Therefore fixed investment means investing in physical assets like: machinery, buldings, land, vehicles, installations or technology. The term “fixed” doesn’t mean essentialy that the asset “stays in one place” and is immobile physically, but it rather refers to the circulation of capital’s flows.

An example of business fixed investment spending is:

1. a purchase of a bond by General Electric Corporation.
2. a purchase of a home by a household.
3. $200 million of unsold cars at a car dealership.
4. a purchase of a computer by an accounting firm.

The correct answer is number 4.

What are the types of investments?
Business fixed investment: usinesses’ spending on equipment and structures for use in production
Residential investment: purchases of new housing units (either by landlords or occupants)
Inventory investment: the value of the change in inventories of finished goods, materials and supplies, and work in progress.

How to understand business fixed investment?
– The standard model of business fixed investment: the neoclassical model of investment
– Shows how investment depends on tax rules affecting firms. MPK, interest rate.

Gross Private Investment consists of two components:
– Fixed Investment (Usefulness of investment in property or equipment. Business spending on capital equipment (durable assets), and Household Investment in housing)
– Inventories.

Gross Investment includes two components:
– Replacing worn out equipment,
– New additions to capital stock.

More about fixed investment at wikipedia here.

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