When the term macroeconomics is used in this context, it brings about the aspect of economics that deals with examining the economy as whole. As a matter of fact, macroeconomics looks at the issues of what causes economic growth and recession from a global point of view. It also points out to economics as a comprehensive subject incorporating issues of investment, national income and consumption. In this connection, the issue of concern will be investment which has in the recent past received a lot of attention.
Investment in this case, can be defined as a commitment made by one in form of money or capital in purchase of financial instruments (OCDE 56). It may not be limited to financial instruments but it also includes other assets that may be purchased in order to receive returns in forms of income, dividend, interest and any other form meant to appreciate the value of the asset purchased. It happens that before any investment there are some good analyses that should be made in order to avoid the pitfalls of engaging in great risks which may result to greater losses.
Actually, investment is always accompanied by the risk of a loss attached to the principal sum. There are actually many areas of economy covered by investment and as such they cover the management of business and finances in households, government and firms altogether. From another point of view, investment is the value of plants, machinery and buildings usually bought for the purposes of productivity.
There are several macroeconomic roles that are played by investment as some individuals view it. As such, investment enlarges the basis of economy in the sense that it leads to the increased capacity of production. In line with this, investment leads to the improvement of the cost effectiveness and modernization of the processes of production (Piana 1). In addition, investment greatly contributes to the current demand of capital goods resulting to the increased domestic expenditure. Apart from this point, investment at a macroeconomic level involves international world class innovations. At the same time, it includes the standards of quality by bringing together developed and developing countries.
As well, it brings about much attention being given to international or cross border trade. In addition, investment has the advantage of bringing about the production of improved and new products and as a result the value of the products is added as they are being produced. Needless to say, investment makes it possible for the needs per unit output being reduced. It actually has the ability to increase productivity while reducing employment opportunities (Piana 1).
An investment affects economy largely and so to speak, it is important to state what are the pros and cons of investment. Attributed to this issue, are both advantages and disadvantages. As such, there are remarkable benefits associated with investing. As a matter of fact, there are different types of investments. They include purchasing of a real estate, collectibles, securities and financial assets such as shares and bonds on the market. Benefits come owing to the fact that investment makes one's money to work.
Along with this, investment is viewed as a necessity for a modern life and as a matter of fact it is a source for an extra income since it helps one to make profits from the returns realized. In a case whereby one gets a good return on the investment made, he or she is able to maximize the potential of earning income return on the investment (OCED 126). Arguably, investment has great investment returns of which one can get the returns through investment of both large and small amounts of money. Investment as well, allows for long term investment of which it may be of great benefit in the future. It is also possible with investment for one to invest in the area of his or her interest. It is in reality a save that is not usually taxed. Assuming a foreign investment, it acts as a tool necessitating economic growth.
On the other hand, there is there are also disadvantages associated with investment. As it has been highlighted earlier on in the text, the major and the foremost limitation towards any investment made, it is the embedding danger of losing the investment made (Solo 163). As it regards the investments made in rare collectibles, it may become a great loss to the investor once the popularity and the availability is not reliable. At the same time, stock prices may fluctuate and thus adversely affecting the investments.
From a general pint of view, usually there is not guarantee of returns. This means that there is always an emanating danger of potential loss of the very capital that has been invested. It has been noted from research that long term investments may not have room for early withdrawals and as such, it may be so hard when a need for early investment arises. It has also been noted with a lot of concern that there are some hidden costs and work involved while investing with the example of a purchase of property. Another point to note is that investments are greatly affected by economic crisis and problems arising from the market and thus the value of the investment may be degraded resulting to losses.
According to Solo (2000), the benefits of investment may be relatively concentrated. This is to suggest that the proponents of investment look at the focused or rather the diffused benefits resulting from an investment (140). In fact, what is of more importance in an investment is the aspect of the perceived total benefit measured on the basis of the particular type of investment. OECD (2005) points out the fact that investment is a tool that can be utilized for development of an economy (10). For instance, if it happens that a country is receiving foreign investors; this may lead to a tremendous growth in the economy.
The issue of investment is an international or rather a global issue. There are some who have neglected the benefit that comes with it while others have taken it with seriousness. Hence, there are those who have benefited from it with others not benefiting but rather suffering great losses. Those who benefit from it enjoy affordability, liquidity of the money, diversification and professional management. In combination with this point, the benefits associated with investment cannot be left to chance and thus research points out that investment is a key tool in the economical development of any economy (OECD 11). Investments affect an economy either positively or negatively.
According to the proponents of investment, it is an important venture but should be done with a careful analysis of the risk involved. For example, an investment made in a bank deposit, the risk is low although it is determined by the credit of the bank. In connection to this point, the return in such a case is low though reliable. Accordingly, an investment in a debt instrument relies heavily on the credit of the company and it has a higher return than that of a bank deposit but it is determined by the time of maturity as well as the rating of the credit. In a case whereby the investor resolves to venture in a mutual fund, this depends on the strategy of investment with the returns depending on the strategy employed. From this perspective, investment is beneficial with the precondition of careful analysis of the risk associated (Solo 103).
Interestingly enough, investment can prove to be so hard especially when one has suffered a loss. Therefore, from the point of view of those that do not support investments it becomes a way that causes losses and in actual sense an exercise in futility. In this regard, investment becomes an exercise in futility when there is the involvement of losses and the added costs that arise. This can also be attributed to market instability which may lead to a decreased value of investment. In such a case, investment is not worth.
Generally speaking, investment has the potential to save money for one's future use and as such it has the benefit of saving without being taxed. Unquestionably, on an investment, there is growth of money which has been invested in the sense that it grows at a better rate as compared to that of the price increases. On the other hand, there is only one general problem with investment from those that oppose its application. As such, one may lose money invested if he or she embarks on investing on a high risk business. Equally important, from a personal point of view, investment is a good business venture if and only if analysis is done with great care to avoid the pitfall of losses.
In summation, investment is a key factor in what constitutes an economy. It is in essence a contributing factor towards the development of any economy. It is responsible for the growth of the economy and in fact, anything that affects investment ranging from market problems lowering its value, affects the economy. Given to this, is the fact that investment is one of the greatest components of macroeconomic factors. Especially, investment has great roles to play as it has been highlighted earlier in the text.