2.2.3- Investment

Question 1

what is investment

Answer 1

the addition to capital stock of the economy (capital spending by firms)

Question 2

Difference between gross and net investment

Answer 2

G-before depreciation
N-after

Question 3

Factors affecting investment

Answer 3

costs of capital- affects rate of return
tech changes- affects productivity so ROR
expectations- confidence in future revenues
profit- incentives and funds
taxation- affects profits
interest rates- affects costs and ROR
credit availability- affects willingness
regulations- increases costs and ROR

Question 4

what is the impact of confidence on investment

Answer 4

Keynes referred to naive optimism where a rising market leads to too many risks, so when animal spirits are strong investment maintains AD