Goods which are used to produce commodities (producer goods) and includes the accumulation

Of inventories. In the national accounts (social accounting) investment is the sum of gross fixed

Capital formation and the physical change in stocks and work in progress. Investment contributes to

Higher output. Investment may be stimulated by changes in demand or technology, by high profits or

by low interest rates (since much investment expenditure is financed by borrowing). The theory of

Income determination shows how savings and investment are brought into equilibrium.

Secondly, investment, in common usage, is expenditure on the acquisition of financial or real

Assets. To the economist this is not investment, but simply a shift of savings from one form (cash) to

Another.

11.7.1.3. Read the text “The Debt Crisis of Developing Countries” and make an annotation of it.

The Debt Crisis o f Developing Countries

Developing countries, particularly those in Latin America and Africa, carry large amounts of

External debt — debt owed to banks beyond their borders. The total amount of the so-called Third

World or developing countries debt is estimated to be in excess of $ 1,5 trillion. For example, Brazil

has an external debt of about $120 billion, which represents a third of its GNP. Mexico has over

$100 billion of external debt, which represents over 60 percent of its GNP. Chile’s external debt of

$20 billion represents 100 percent of its GNP.