Factors Influencing Investment

Question 1

what are the 4 factors

Answer 1

1. interest rates
2. bsuiness expectations
3. profatability
4. gov policies

Question 2

why (2 points) is the relo between interest rates and investment negative

Answer 2

1. loan repayments rise so less income for investment

2. op cost for business: high interest rates mean the return of investment into capital must be higher to be worth it

Question 3

what is the difference between nominal and real interest rates

Answer 3

nom - current price of borrowed money

real - takes into account inflation rate, real cost of borrwed money

Question 4

describe the pos relo between business expectations and investment

Answer 4

1. upswing: high investment spending

2. contraction: low investment

Question 5

what do changes in non price factors do to the graph (draw)

Answer 5

shift

Question 6

describe the effect of profatiblity on investment

Answer 6

1. firms retain portion of profits for expansion when econ conditions bad firms rundown equipment so buy more. When high profatability they can invest heaps

Question 7

what does fiscal policy do

Answer 7

affect investment decisions by affecting costs and expected sales revenue

Question 8

what does tax do

Answer 8

changes risk/reward relationship in that sector but may attract investment funds to an indsutru

Question 9

what is the point of gov regulatory framework

Answer 9

stabllises economy for long term priv sector ivnestmet