What is meant by investment? How it is determined?

Investment meaning. In money terms investment means expenditure made on purchase of new capital assets like machines, equipment inventories, etc. Investment is an addition to the existing stock of real assets (like creation of new machinery, buildings, etc.) and changes in inventories (like stock of finished goods). It includes anything that adds to the future productive capacity of the economy.
Determination of Investment. According to Keynes, volume of investment is determined by two main factors — marginal efficiency of capital and rate of interest. Thus investment decision by producers (entrepreneurs) depends on marginal efficiency of capital (MEC) or rate of return and rate of interest. (MEC is rate of return from marginal unit of capital.) Firms undertake investment as long as return from investment is greater than cost, i.e., rate of interest on borrowing funds for investment. In short, firms invest when they expect enough reward from their investment to pay back rate of interest and yet obtain reasonable profit. Thus, investment demand function is the relationship between investment demand and rate of interest. It needs to be noted that equilibrium level of investment demand for an economy is when MEC=Rate of interest in the economy.