Investment 2.2.3 Unit 25 Flashcards
What is Business investment?
It is the the addition to the capital stock of an economy used to produce other goods and services.
What is gross investment?
It is the addition of capital stock, both to replace the existing stocks that have been used up and the creation of additional capital.
What is net investment?
It is gross investment minus the depreciation of existing capital goods.
How can the rate of interest effect investment?
Some investment is funded by borrowing so if the cost of this money increases business wont be able to invest as much.
However some investment is funded by retained profits so the cost of investment has become lower encouraging it.
What is the accelerator effect?
Is a theory that believes businesses are waiting for a upturn in the economy before they start investing and when this upturn occurs businesses invest heavily resulting in further increases in the growth of an economy.
What will the effect of increased costs do to investments?
If costs where to increase, ceteris paribus, the rate of return from investments will decrease resulting in the incentive of investing decreasing.
What will be the effect of increased government regulations?
It will result in a fall in investment as there will be lower profit margins and therefore the revenue of businesses will fall. This could result in lower retained profits thus creating lower potential for investments.
How will a boom in the worlds economy effect investment?
If the there is an economic boom where to take place abroad there would be more demand for exports thus increasing the size of the market for businesses and increasing there revenues and retained profit potential.
What are the retained profits?
It is profit kept back by a firm for its own use which is not distributed to shareholders or used to pay taxation.
