2.2.3 - Investment Flashcards

1
Q

Influences on investment

A

• the rate of economic growth
• business expectations and confidence
• demand for exports
• interest rates
• access to credit
• the influence of government spending and regulations

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2
Q

What is investment

A

Spending on capital goods e.g. plant (factories), machinery and infrastructure

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3
Q

What is the difference between gross and net investment

A

• gross investment is total investment on new capital inputs
• net investment is gross investment adjusted for capital consumption (depreciation)
• depreciation is the reduction in the market value of capital

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4
Q

Factors influencing business investment

A

• actual/expected demand for goods and services
• cost of capital - opportunity cost/retaining profits
• cost of borrowing/access to credit
• corporation taxes
• business confidence
• new technology/pace of change
• government intervention

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5
Q

Benefits of investment + evaluation

A

• injection into circular flow of income - machinery bought may be an import
• may improve productivity (extra supply) - time lag/training issues be for productivity goes up
• increases industries producing investment goods (extra demand) - using robots, automation and AI replaces workers leading to unemployment
• improves competitiveness through price/quality/availability - many other factors affect competitiveness including exchange rate

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6
Q

Importance of infrastructure investment

A

• tend to have large upfront costs but benefits that will add up over many years
• should cause both aggregate demand and supply to increase
• demands on infrastructure such as roads will rise along with economic growth and population
• high multipliers effects from multi-billion investment projects

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