Investment Demand

Investment demand refers to that part of economy’s total expenditure which creates new capital goods like plants, machines and equipments etc. that increase the productive capacity of economy. Private investment refers to the investment made by the private entrepreneurs for creation of new plants, factory buildings, machines etc. which increases the productive capacity of the economy. It is different from financial investment which refers to the purchase of shares and debentures of existing companies. Financial investment does not help in raising income and employment in the economy. It is only real investment which raises the income and employment by creating new productive capacity. Private investment is based on the consideration of profit. If profit prospects are low then private investment will fall leading to the fall in aggregate demand and consequent decline in aggregate output and employment. On the other hand, if profit prospects are bright, private investment will increase.