What is Fixed Investment?

Question

Define the Fixed Investment? Or, What are the Significance of Fixed Investment?

Answer 1

Fixed Investment refers to increase in the stock of fixed assets of the producers an accounting year.

Fixed Investment is also called fixed capital formation this implies increases in the stock of capital in terms of fixed asset or capital goods which are repeatedly used in the process of production for several years.

Significance of fixed investment :

1. Fixed investment implies increase in the stock of fixed asset (Plant and Machinery) of the producers. It raises production capacity of the producers.
2. By raising production capacity of the producer, Fixed Investment lead to higher and higher level of output in the Economy.
3. Higher level of output (related to fixed investment) leads to higher rate of economic growth popularly known as GDP growth.