The functioning of a market economy is very dependent upon investment for provision of capital and future growth. Describe the process of investment and employment of the created capital in production.

What will be an ideal response?

The text lists five steps: (1) decision of the firm to enlarge the capital stock; (2) acquisition of funds from outside sources or retained earnings; (3) use of funds to hire inputs to build factories, etc. (investment); (4) addition to capital stock from the investment process; and (5) employment of the capital in production to expand output or reduce costs, which produces returns on the investment.