Introduction to U.S. Economy: Business Investment (CRS Report for Congress)
| Release Date |
Revised Oct. 3, 2024 |
| Report Number |
IF11020 |
| Report Type |
In Focus |
| Authors |
Jeffrey M. Stupak |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
Business investment is spending by private businesses and
nonprofits on long-lasting assets, also known as physical
capital, that assists in the production of goods and services.
Physical capital is generally grouped into three categories:
equipment (e.g., machinery or computers), structures (e.g.,
offices or warehouses), and intellectual property (e.g.,
software development or research and development).
Through investment, businesses can build up their stock of
physical capital, which increases their capacity to produce
goods and services. For example, when a restaurant
purchases an additional grill, it increases its capacity to
prepare food at a given time. However, over time physical
capital tends to become less productive due to wear and tear
and eventually must be replaced as it breaks down. This
process is referred to as depreciation. For a firm to
continually increase its stock of physical capital, and
therefore its productive capacity, it must make investments
into new physical capital faster than its current physical
capital is depreciating. The same goes for the economy as a
whole—for the economy’s stock of physical capital to
increase, the investment rate must exceed the rate at which
physical capital depreciates.
