An example of investment spending would be equipment, buildings, and roads as done by government of any country. Businesses, governments and individuals usually try to use investment spending in order to make certain types of expenses work to their benefit. These expenditures work by producing long-term benefits. Investment spending is mainly related to the acquisition and creation of capital goods with the intention to use them trying to stimulate economic production. As you presume correctly – capital goods are those products needed to create other goods.
Precisely an example of investment spending would be:
– a local pizza store or local baker buying a new oven,
– fishing company purchasing a new boat for its fleet,
– any company purchasing a new productive machine,
– gym trainer purchasing new gym equipment.
Investment spending in macro economic terms refers to a proximate cause and effect relationship which is related to long and short term margin of profits. Sources of funds for investment spending are: savings by households, government, businesses and foreigners. When the government invests in building rocks, ports, and power grid, the government is investing in a nation’s infrastructure. Capital expenditures (investment spending) is private, gross investment, primarily capital expenditures of enterprises. They play two roles:
represent a significant but not much stable part of private expenditure, resulting in changes in spending that affect the level of aggregate demand, and thus on the production and employment,
lead to the accumulation of capital, so that the public increases its potential product in the long term conducive to economic growth.
In macroeconomic terms, capital expenditure is everything that grows in a given year, already existing production capacity, so the factory or machines for instance. Do not confuse this with the expenditure on the purchase of stocks, bonds or investments, which are investments in micro-economic terms.
Types of investment spending (in the literature there are two main categories of investments):
Net investment defined as the net increase in real capital in a given society (machinery, equipment, buildings, inventories). Net investment is additional real capital made.
Gross investment, which includes all capital goods purchased for both restoring old and worn factors of production, as well as larger capital.