"The term investment, as used by economists, refers to the purchase of bonds and shares of stock."

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pohnpei397 eNotes educator| Certified Educator

Assuming that this is a true or false question, the answer is “false.”  This statement does describe how most people use the term “investment,” but it is not how that term is used in economics.

When lay people talk about investment, they are talking about saving their money in some way that will earn them a return.  Often, this means buying stocks and bonds.  They hope to make money in the future as their stocks (hopefully) increase in price and pay dividends and they expect their bonds to pay off when they mature.

In economics, “investment” typically refers to businesses buying capital goods so that they can increase their ability to produce goods and services that they will sell.  For example, if a car manufacturer builds a new factory with lots of new robots, they are engaging in investment.  If an online retailer buys new software for tracking their inventory, they are investing.  These goods will help them to produce and distribute the things they sell more efficiently.

Both uses of the word “investment” do have to do with using money in ways that do not help you now but will help you in the future.  However, economists do not consider buying stocks and bonds to be investment in economic terms.