In any technical subject, words commonly used in everyday life acquire very specific technical meanings, and confusion can arise when someone is uncertain of the intended meaning of a word. This article explains the differences in meaning between some technical terms used in economics and the corresponding terms in everyday usage.
"Investment" and "capital"
While financial economists use the word "investment" to refer to the acquisition and holding of potentially income-generating forms of wealth such as stocks and bonds,macroeconomists usually use the word for the sum of fixed investment—the purchasing of a certain amount of newly produced productive equipment, buildings or other productive physical assets per unit of time—and inventory investment—the accumulation of inventories over time. This is one of the major types of expenditure in an economy, the others being consumption expenditure, government expenditure, and expenditure on a country's export goods by people outside the country.
The everyday usage of "investment" coincides with the one used by financial economists—the acquisition and holding of potentially income-generating forms of wealth such as stocks and bonds.
Similarly, while financial economists use the word "capital" to refer to funds used by entrepreneurs and businesses to buy what they need to make their products or to provide their services,macroeconomists and microeconomists use the term capital to mean productive equipment, buildings or other productive physical assets.
As with the term "investment", the everyday usage of "capital" coincides with its use by financial economists...
Macroeconomics, 7th Edition (N. Gregory Mankiw) {S-B}™
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