Determinants of Investment Flashcards
who is an investment made by?
made by a business
what may firms invest money into?
assets such as machinery, buildings and equipment
Why do firms invest?
invest to increase future profits
whats the measure of investment?
Net Investment
What are the main factors determining investment?
- Real Disposable Income
- Interest Rates
- Business Confidence
- Technology
- Incentives and taxation
If RDI increases…
demand for consumer goods and services will to
if demand for goods and services increases…
It encourages firms to expand their capacity and invest if their current capacity is insufficient
Increase in interest rates reduces investment because…
- increases opportunity cost of investment
- more expensive to borrow
- reduced business expenditure; lower expected return
when are firms more likely to invest and why?
when they feel optimistic about the future. This is because they anticipate higher future profits from investments
how may profit be increased?
by producing at a lower UNIT COST (avg cost per unit output)
What two reasons are there for firms choosing to advance technology for a business?
1) Keep up with existing and potential competition
2) offers more future productivity
What is corporation tax?
a tax on firms profits
What may a cut in corporation tax do for a firm?
increase the proportion of profit a firm keeps and increase investment
What happens when there are fewer regulations?
increase incentives to invest(lower costs)
When are firms most likely to invest?
when they are operating close to full capacity
