Guide to Rental Property Investment: Investment is one of the most important variables in economics.

Guide to Rental Property Investment: Investment is one of the most important variables in economics.

English | December 22, 2020 | ISBN: N/A | ASIN: B08R68BVP6 | 83 Pages | MOBI | 0.20 MB

Investment is one of the most important variables in economics. On its back, humans have ridden from caves to skyscrapers. Its surges and collapses are still a primary cause of recessions. Indeed, as can be seen in Figure 1, investment has dropped sharply during almost every postwar U.S. recession. As the graph suggests, one cannot begin to project where the economy is going in the near term or the long term without having a firm grasp of the future path of investment. Because it is so important, economists have studied investment intensely and understand it relatively well.By investment, economists mean the production of goods that will be used to produce other goods. This definition differs from the popular usage, wherein decisions to purchase stocks or bonds are thought of as investment.Investment is usually the result of forgoing consumption. In a purely agrarian society, early humans had to choose how much grain to eat after the harvest and how much to save for future planting. The latter was investment. In a more modern society, we allocate our productive capacity to producing pure consumer goods such as hamburgers and hot dogs, and investment goods such as semiconductor foundries. If we create one dollar worth of hamburgers today, then our gross national product is higher by one dollar. If we create one dollar worth of semiconductor foundry today, gross national product is higher by one dollar, but it will also be higher next year because the foundry will still produce computer chips long after the hamburger has disappeared. This is how investment leads to economic growth. Without it, human progress would halt.In an economy that is closed to the outside world, investment can come only from the forgone consumption-the saving-of private individuals, private firms, or government. In an open economy, however, investment can surge at the same time that a nation's saving is low because a country can borrow the resources necessary to invest from neighboring countries. This method of financing investment has been very important in the United States. The industrial base of the United States in the nineteenth century-railroads, factories, and so on-was built on foreign finance, especially from Britain. More recently, the United States has repeatedly posted significant investment growth and very low savings. However, when investment is funded from outside, some of the future returns to capital are passed outside as well. Over time, then, a country that relies exclusively on foreign financing of investment may find that it has very little capital income with which to finance future consumption. Accordingly, the source of investment finance is an important concern. If it is financed by domestic saving, then future returns stay at home. If it is financed by foreign saving, then future returns go abroad, and the country is less wealthy than otherwise.


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