INvestment

Question 1

Influences on investment

Answer 1

Economy state
Interest Rates
Business confidence
Demand for exports (for weaker or stronger pound)

Question 2

Chain of reasoning for why business confidence will influence investment?

Answer 2

2 ELEMENTS)PROFITS AND DEMAND
expect both to be high going forward>MP to invest is higher to meet that demand and obtain the profits>incentivises investment

but if expect both low>no need to invest to increase capacity>therefore less investment> lower AG demand in economy

Question 3

Chain of reasoning for why levels of competition will influence investment in our AGDEMAND

Answer 3

High competition>firms invest to level with competition if they have better tech or R&D>huge investment may take place for busineses to exceed competitors e.g by introducing better more effective capital

Question 4

Accelarator

Answer 4

inc in rate of real gdp in an economy which encourages more investment>increases rate of gdp>encourages more investment and so it loops.

Question 5

Chain of reasoning for why interest rates will impact investment AGDEMAND

Answer 5

Low interest rate>cost of borrowing low>firms have greater incentive to borrow more money to invest>MP to invest increases.

Question 6

CHain of reasoning why economic growth will influence investment

Answer 6

If growth is high, firms will be making more bc of higher rates of
consumer spending.> they have more profits available to invest so higher MP to invest

Question 7

Effects of increase in investment

Answer 7

The initial increase in investment >causes a rise in output >people gain more income>which is then spent causing a further rise in AD. economic growth bc increased consumption