Investment Flashcards
1
Q
What are the three components of Investment?
A
New Capital, New Construction, Inventories
2
Q
When should investment happen?
A
If Expected Rate of Return (ERR) is greater than or equal to Interest Rate.
3
Q
Investment Is:
A
- The most volatile part of Y. 2. Solely dependent on Interest Rate
4
Q
Planned Investment
A
Purchases of New Production Equipment + Planned Additions to Inventory
5
Q
Actual Investment
A
Purchases of New Production Equipment + Actual Additions to Inventory
6
Q
Expected Rate of Return (ERR)
A
Measures the profitability of an investment: Benefit / cost: Revenue Expected - other costs / Price
