27. Write a short summary of the text

TEXT 4. INVESTMENT

Investment in capital goods occurs when savings are used to increase the economy's productive capacity by financing the construction of new factories, machines, means of communication, and the like. Saving occurs when individuals, businesses, and the economy as a whole do not consume all of current income (or output). From an individual standpoint, saving represents income not spent. Much unspent income may be placed in financial institutions such as banks and saving and loan associations, which in turn make loans to those who wish to buy capital goods or other resources.

Individuals may also place their savings more directly, by purchasing newly issued shares of corporate stock, bonds, and similar financial instruments or by buying instruments already issued from others, who may use the funds they receive to buy new issues. Individuals may also contribute to pension funds or purchase mutual funds and the like. Such funds also typically buy financial instruments.

To a great extent, the process of saving and investment represents a diversion of productive resources from the output of goods and services for current

consumption to the creation of up-to-date, technologically advanced capital goods that can expand production and increase the productivity of human and natural resources. Workers using modern logging and transportation equipment, for example, can cut more trees and deliver more lumber than they can produce with hand saws and horse-drawn wagons. An office worker using a word processor can produce more letters than one using a typewriter, who in turn, can produce more than someone using a pen. A pilot can fly more passengers more miles faster with ajet plane than with a propeller-driven aircraft, and so on.

Capital goods often cost a great deal of money and last for a long time. Investing in capital goods, therefore, carries the opportunity cost of other uses to which the money could be put, and it also usually involves taking a risk. For example, if still newer technology emerges quickly or if market conditions change, a machine may become obsolete before it has generated enough income to pay back those who invested in it. Businesses that invest in capital goods, therefore, must anticipate that they will receive enough income to make it worth while to accept the possible risks.

Investment in human capital occurs when the health, education, and training of the population are increased through the efforts of individuals, businesses, or governments. Good health, education, and relevant training all contribute to workers' productivity. However, investment in human capital, like investment in capital goods, also involves an element of risk. Individuals who invest time or money in more education and training usually become more productive, get better jobs, increase their incomes, and find greater satisfaction in their work and leisure, but these benefits are not guaranteed.

Investing in education and training also carries opportunity costs because it employs resources that could be put to other uses. The cost of a college education, for example, includes not only direct payments for tuition, books, and fees, but is also the loss of the output and income that could have become available if the student had been working full time instead of going to school.

Technological change can be defined as the incorporation into production of new knowledge and processes that result in:

19. a different organization of the production process;

20. improvements or the introduction of innovation in capital goods; *-

21. modifications of the goods and services currently being produced;

22. the invention and introduction of new goods and services.

The computer, the jet plane, and the fax machine are but a few relatively recent and striking examples of technological change. Such improvements depend heavily on basic and applied research, assessments of the probable success of a new technology, gifted and knowledgeable experimentors and inventors, and the amount of savings available to underwrite the costs of developing and introducing new technology.

In addition to the effects on productivity of individual and business decisions about saving and investing, government actions and policies also play a role.

Historically, governments have encouraged increases in productivity by actions such as providing transportation facilities, providing education, and underwriting or performing agricultural research. Governments also establish a framework of law and political stability that makes long-term private commitments feasible and profitable. However, governments can hamper productivity increases if their laws or regulations serve particular groups rather than the general welfare, if their tax policies adversely affect saving and investment, or if they enact price regulations and trade restrictions that prevent resources from moving to their most productive uses.