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Carefully explain the difference between the term "investment" as used by economists and the way it is used in everyday life. Use this to explain the major components of investment in the GDP accounts and why they are classified in this way. If a firm buys a ream of paper for a copier, which will be used within a year, how does this count towards investment?

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When economists talk about investment they are referring to capital investment. This generally refers to firms buying new buildings, infrastructure, materials, etc. It also includes new real estate construction. In everyday life when people say investment they are usually referring to personal savings and financial markets. Economists refer to this as savings. However, the money ...

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