How does investment as defined by economists differ from investment as defined by the general public? What would happen to the amount of economic investment made today if firms expect the future returns to such investment to be very low? What would happen to the amount of economic investment today if firms expect future returns to be very high?

• Economists use the economic investment concept as an investment:Economists use the investment concept only for economic investments. An investment that is made to increase the productive capacity of the economy is an economic investment. Suppose a firm directs its money in the production of more efficient capital. In that case, it is considered an investment by economists, which is entirely different from the investment concept used by ordinary people.

• Ordinary people use the financial investment concept as an investment:Ordinary people use the investment concept to purchase stocks, bonds, or real estate in exchange for cash. If an individual buys a plot at a certain amount in the hope of getting higher value on the sale of that plot in the near future, they will consider the transaction of money on the purchase of the plot as an investment.

The economist does not consider the exchange of cash on the purchase of bonds, stocks, or real estate as an investment as it does not increase the productive capacity of the economy. Hence, the concept of investment for economists differs from ordinary people.

If the firms are expecting very low returns on economic investment made today, they will borrow less from the banks for investment. The speculation of low returns in the future will discourage investors from investing in the economy in the current situation. As a result, they will reduce their economic investment in the economy.

If the firms are expecting very high returns on economic investment made today, they will borrow more from the banks for investment. The speculation of high returns in the future will encourage investors to invest more in the economy in the current situation. As a result, they will increase their economic investment in the economy.