CHAPTER 25 INVESTMENT

Question 1

Accelerator coefficient

Answer 1

The capital output ratio

Question 2

Accelerator theory

Answer 2

The theory that level of investment is related to past changes in income

Question 3

Animal spirits

Answer 3

Business confidence: the mood of managers and owners of firms about the future of their industry and the wider economy.

Question 4

Capital output radio

Answer 4

The ratio between the amount of capital needed to produce a given quantity of goods to the level of output.

Question 5

Depreciation (of the capital stocks) or capital consumption

Answer 5

The value of the capital stock which has been used or worn out.

Question 6

Gross investment

Answer 6

The addition to capital stock, both to replace the existing capital stock which has been used up (depreciation) and the creation of additional capital

Question 7

Investment

Answer 7

The addition to the capital stock of the economy

Question 8

Net investment

Answer 8

Gross investment minus depreciation

Question 9

Retained profit

Answer 9

Profit kept back by a firm for its own use which is not distributed to share holders or used to pay taxation