Investment

Question 1

What is investment

Answer 1

Spending by firms on capitol stock

Question 2

Why do firms invest

Answer 2

To increase productive capacity (maximum potential capacity) so that they can meet rising demand

Question 3

Investment is likely to increase the ______________ of an economy

Answer 3

Productivity

Question 4

Factors that influence investment

Answer 4

Consumer expenditure
Interest rates
Business confidence
Technological advance
Economic growth
Corporation tax

Question 5

Effect of corporation tax on investment

Answer 5

Increase in corporation = Firms get less profit = less ability to invest = Increase in investment

Question 6

Effect of interest rates on investment

Answer 6

Increase in interest rates = Less spending due to an increase in the cost of borrowing = less profit on investment = Decreased incentive to invest

Question 7

Effect of household spending on investment

Answer 7

Increase in consumer expenditure = increased profit for firms = firms need to invest more to meet demand = increase in investment

Question 8

Effect of expected economic growth on investment

Answer 8

Expected economic growth = uncertainty = Less willing to invest = decrease in investment

Question 9

Effect of advance in technology on investment

Answer 9

Advance in technology = increase in potential maximum capacity = willingness to invest = increase in investment

Question 10

Effect of business confidence on investment

Answer 10

Increased business confidence = increased willingness to invest = increase in investment