In the simplest economic models, there are just two factors of production: capital and labour. The stock of capital includes all fixed assets associated with productive capacity (for example, factories, machinery, plant and equipment, inventories) and/or future consumption for example, residential fixed assets. Some of the key types of investment are outlined in Box 2.1. The key defining characteristics of these fixed assets is that they represent postponed consumption: people invest in fixed assets because they expect these assets to deliver goods and services in the future. Investment is the flow into this stock of capital goods and is illustrated in Figure 2.1.
KeywordsDiscount Rate Capital Stock Real Interest Rate Investment Project User Cost
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