How is the investment ratio calculated?

The investment ratio is calculated by taking gross investment and expressing it as a percentage of Gross National Product (GNP). Gross investment encompasses all expenditures made for new physical assets, including structures and equipment, within a specific time frame. This metric provides insight into the level of economic activity and future production capacity, as it reflects the amount of resources being allocated toward building and expanding capital.

Using gross investment as the basis for this ratio is essential because it accounts for the total investment activity, without subtracting depreciation or considering only net additions to capital stock. By comparing gross investment to GNP, one can assess the investment's role relative to the size of the economy, thereby highlighting how much of the economic output is being reinvested into productive capacities. This measurement is crucial for understanding overall economic health and investment trends.