<p>As mentioned by @Henry: investment is itself a demand for capital goods (physical, human, etc.).</p>

<p>If I decide to buy trucks this manifests itself as an increase in demand to the truck factory.</p>

CC BY-SA 4.0
2019-09-06T06:53:28.580Z
2019-09-07T09:08:26.480Z
2019-09-07T09:08:26.480Z
Giskard
<p>The most direct way I could think of: investment means construction companies, etc. need to get more workers. These workers will then have higher income and generate more demand.</p>

CC BY-SA 4.0
2019-09-06T06:37:22.697Z
2019-09-06T06:37:22.697Z
Art
<p>Seems like this is kind of the logic behind "Says Law".</p>

<p>By a loose chain of logic, increase in investment by firms increases capital stock posessed by firms.This then this increases productivity per worker which in turn increases wages for workers.
From these increases in wages workers  have more purchasing power.</p>

<p>This logic however ignores any sort of possible existance of labor contracts which keeps wages down when productivity goes up. When discussing the macroeconomy as a whole this isnt so crazy, however this logic is largely dependent on a given country's political economy.</p>

CC BY-SA 4.0
2019-08-07T00:25:48.690Z
2019-08-07T00:25:48.690Z
EconJohn
<p>I quote from the first page of <a href="https://www.indiabudget.gov.in/economicsurvey/doc/vol1chapter/echap01_vol1.pdf" rel="nofollow noreferrer">India's Economic Survey 2019</a> (an official document) - </p>

<blockquote>
  <p>Investment, especially private investment, is the “key driver” that
  drives demand, creates capacity, increases labour productivity, introduces new
  technology, allows creative destruction, and generates jobs.</p>
</blockquote>

<p>Does investment <strong>directly</strong> drive demand? If so, how? I can only see investment leading to higher productivity which increases <strong>supply</strong> and displaces jobs.<br>If not, is the increase in demand a ripple effect of investment? If yes, what's the connection?</p>

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2019-08-03T11:27:07.047Z
It might be good to note that not all investment is innovative. Sometimes you are just building new things, like a public swimming pool. This will not displace any jobs. Also a newly built sophisticated factory may not replace an older factory, perhaps there was simply nothing there. (Or at least not in the same country.)
Giskard
CC BY-SA 4.0
2019-08-03T11:58:42.310Z
Investment in the sense of new capital goods (buildings, machines, equipment, etc.) directly drives demand in the same way as consumption does for non-capital goods.
Henry
CC BY-SA 4.0
2019-08-03T14:38:28.230Z
@Henry Do you mean to say investment drives demand for capital goods? (Just like consumption drives demand for non-capital goods). But I thought capital goods are themselves considered investment? Please bear with me since I have no background in economics.
yathish
CC BY-SA 4.0
2019-08-03T16:45:26.263Z
@yathish Now you are suggesting a distinction between "is demand" and "directly drives demand". I am not sure it matters
Henry
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2019-08-03T18:29:02.050Z
@Henry "A is B" and "A directly drives B". How can these two not be distinct?! Am I missing something
yathish
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2019-08-04T20:25:56.047Z
@ yathish: $A \subset B \Rightarrow$  an "increase in A directly drives B up".
Grada Gukovic
CC BY-SA 4.0
2019-08-05T08:09:17.230Z
@GradaGukovic So you're suggesting investment is part of demand? I'm getting more confused now. Demand is for goods and services. Investment is the capital (could be non-monetary) that is put in, in order to produce goods and services - for which there will be demand. As I stated in the question, again I'm seeing that investment primarily influences supply of goods and services.
yathish
CC BY-SA 4.0
2019-08-05T13:37:39.013Z
This is too broad. It is true that investment is going to drive demands, but it doesn't mean the outcomes are always positive. E.g. rent seeker may invest in defending their rent/monopoly position.
mootmoot
<macroeconomics><investment><demand>
Does investment directly influence demand?
yathish
# Does investment directly influence demand?

(Asked by: username_0 on 2019-08-03)

I quote from the first page of [India's Economic Survey 2019](https://www.indiabudget.gov.in/economicsurvey/doc/vol1chapter/echap01_vol1.pdf) (an official document) -

> Investment, especially private investment, is the “key driver” that
> drives demand, creates capacity, increases labour productivity, introduces new
> technology, allows creative destruction, and generates jobs.

Does investment **directly** drive demand? If so, how? I can only see investment leading to higher productivity which increases **supply** and displaces jobs.  
If not, is the increase in demand a ripple effect of investment? If yes, what's the connection?

**Tags:** macroeconomics, investment, demand
> **Comments:**
> **username_1**: It might be good to note that not all investment is innovative. Sometimes you are just building new things, like a public swimming pool. This will not displace any jobs. Also a newly built sophisticated factory may not replace an older factory, perhaps there was simply nothing there. (Or at least not in the same country.)  
> **username_2**: Investment in the sense of new capital goods (buildings, machines, equipment, etc.) directly drives demand in the same way as consumption does for non-capital goods.  
> **username_0**: @Henry Do you mean to say investment drives demand for capital goods? (Just like consumption drives demand for non-capital goods). But I thought capital goods are themselves considered investment? Please bear with me since I have no background in economics.  
> **username_2**: @yathish Now you are suggesting a distinction between "is demand" and "directly drives demand". I am not sure it matters  
> **username_0**: @Henry "A is B" and "A directly drives B". How can these two not be distinct?! Am I missing something  
> **username_3**: @ yathish: $A \subset B \Rightarrow$  an "increase in A directly drives B up".  
> **username_0**: @GradaGukovic So you're suggesting investment is part of demand? I'm getting more confused now. Demand is for goods and services. Investment is the capital (could be non-monetary) that is put in, in order to produce goods and services - for which there will be demand. As I stated in the question, again I'm seeing that investment primarily influences supply of goods and services.  
> **username_4**: This is too broad. It is true that investment is going to drive demands, but it doesn't mean the outcomes are always positive. E.g. rent seeker may invest in defending their rent/monopoly position.  

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## 3 answers

### Answer by username_1 on 2019-09-06. Score: 1 | Accepted answer

As mentioned by @Henry: investment is itself a demand for capital goods (physical, human, etc.).

If I decide to buy trucks this manifests itself as an increase in demand to the truck factory.


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### Answer by username_5 on 2019-09-06. Score: 0

The most direct way I could think of: investment means construction companies, etc. need to get more workers. These workers will then have higher income and generate more demand.


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### Answer by username_6 on 2019-08-07. Score: 0

Seems like this is kind of the logic behind "Says Law".

By a loose chain of logic, increase in investment by firms increases capital stock posessed by firms.This then this increases productivity per worker which in turn increases wages for workers.
From these increases in wages workers have more purchasing power.

This logic however ignores any sort of possible existance of labor contracts which keeps wages down when productivity goes up. When discussing the macroeconomy as a whole this isnt so crazy, however this logic is largely dependent on a given country's political economy.


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