Aggregate Demand Flashcards
What are the factors that affect investment?
Confidence - if businesses are optimistic about future demand, they will increase their productive capacity and start to invest now.
Interest rates - Investment is often financed by borrowing or using savings. Lower interest rates make it cheaper to finance investment and make more projects worthwhile.
Availability for finance - Businesses may wish to borrow and invest but access to credit is a big issue. Banks may be reluctant to give small businesses a loan because it is a risky investment.
Government regulation - Some businesses may be put off investment because of heavy cost of regulation.
Economic growth - A key factor in determining investment is the rate of economic growth. Improvements in the rate of growth and AD will tend to increase investment.
