Determinants Of AD (investment)

Question 1

Relationship between Interest rates and investment

Answer 1

If rises then investment falls because firms borrow money to invest and cost of investment has risen

Question 2

Relationship between National income and investment

Answer 2

If rises then investment increased as consumers will be demanding more products and they have the productive capacity to meet future high demand.

Question 3

Relationship between Technical progress and investment

Answer 3

As rate of progress increases investment rises to replace obsolete capital

Question 4

Relationship between Business confidence and investment

Answer 4

If rises investment rises because they are more confident about future demand

Question 5

Relationship between Cost of labour and investment

Answer 5

If labour rises investment rises as firms switch to more capital intensive production

Question 6

Relationship between Availability of credit and investment

Answer 6

Less credit decline in investment

Question 7

Relationship between Company profits and investment

Answer 7

If profits increase investment increases

Question 8

Spare capacity in investment

Answer 8

More capacity less investment