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January 18, 2018 

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IMPLEMENTATION LAG: In the context of economic policies, the time between the realization that a shock to the economy has occurred and corrective government action responding to the shock. This is one of several policy lags that limit the effectiveness of stabilization policies designed to correct business-cycle fluctuations. This is also one of two inside lags. The other is a recognition lag. The implementation lag, which is often divided into decision and action lags, emerges due to the time it takes for government leaders to debate, discuss, and decide on the appropriate policy then get the appropriate government agencies to launch the policy. The implementation lag is usually shorter for monetary policy than fiscal policy.

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NET PRIVATE DOMESTIC INVESTMENT:

Expenditures on capital goods to be used for productive activities in the domestic economy that are undertaken by the business sector during a given time period, after deducting capital depreciation. This is the official item in the National Income and Product Accounts maintained by the Bureau of Economics Analysis measuring net capital investment expenditures. More specifically net private domestic investment is found by subtracting the capital consumption adjustment from gross private domestic investment. Its primary function is to measure the net increase in the capital stock resulting from investment.
Net private domestic investment indicates the total amount of investment in capital by the business sector that is actually used to expand the capital stock. In general, capital depreciation is between 50 to 85 percent of gross investment. This places net private domestic investment in the range of 5 to 10 percent of gross (and net) domestic product. While net private domestic investment is generally positive, meaning gross investment exceeds depreciation, it is possible for negative net investment, meaning depreciation exceeds gross investment.

A Specific Measure

As the three modifiers in this term suggest, net private domestic investment is a relatively specific measure of investment. It is a net (versus gross) measure of private (versus public) domestic (versus foreign) investment.
  • Net: Net private domestic investment includes ONLY the production of capital goods that are not used to replace depreciated capital. Adding capital depreciation (officially the capital consumption adjustment) to net private domestic investment results in gross private domestic investment.

  • Private: Moreover, net private domestic investment measures investment expenditures made by the private sector. Any capital goods purchased by the public, or government, sector is included in government consumption expenditures and gross investment.

  • Domestic: And lastly, net private domestic investment is expenditures on capital goods used in the domestic economy. The alternative is investment expenditures on capital goods used by the foreign sector.

Derived from Gross Investment

The derivation of net private domestic investment can be found by subtracting the capital consumption adjustment from gross private domestic investment. This is analogous to the derivation of net domestic product. In both cases the capital depreciation is subtracted from the gross value to derive the net value. The following equation summarizes the relation between net private domestic investment (NPDI), gross private domestic investment (GPDI), and the capital consumption adjustment (CCA):

NPDI=GPDI - CCA

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Recommended Citation:

NET PRIVATE DOMESTIC INVESTMENT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: January 18, 2018].


Check Out These Related Terms...

     | gross private domestic investment | capital consumption adjustment | capital depreciation | net domestic product | fixed investment | change in private inventories |


Or For A Little Background...

     | gross domestic product, expenditures | investment | investment expenditures | business sector | gross domestic product | production | product markets | National Income and Product Accounts | Bureau of Economic Analysis | National Bureau of Economic Research |


And For Further Study...

     | macroeconomic sectors | circular flow | business cycles | gross domestic product, ins and outs | gross domestic product, income | gross domestic product, welfare | personal consumption expenditures | government consumption expenditures and gross investment | net exports of goods and services | national income | personal income | disposable income | gross national product | real gross domestic product | saving | investment business cycles | investment, production possibilities | unemployment | inflation |


Related Websites (Will Open in New Window)...

     | Bureau of Economic Analysis |


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