Investment

Question 1

What is investment

Answer 1

Spending on capital goods such as new factories and other buildings machinery and vehicles

Question 2

In market economies, what is most investment done by

Answer 2

The private sector businesses but a substantial amount comes from the government

Question 3

A broader definition of training and education includes

Answer 3

Spending on improving the human capital of the workforce through training and education

Question 4

Gross investment

Answer 4

Spending on new capital inputs. Includes an estimate for the value of capital depreciation

Question 5

When dinner investment positive

Answer 5

Gross investment is higher than depreciation.

Businesses have s higher productive capacity and can meet rising demand in the future.

Question 6

Net investment =

Answer 6

Gross investment - capital depreciation

Question 7

Why might a high level of investment on its own may not create an increase in LRAS

Answer 7

Workers need training to work the new machinery and there will be time lags between new capital spending and the effects on output and productivity

Question 8

Investment is a component of AD (evaluate)

Answer 8

Some investment goods might be imported- a leakage

Question 9

New capital can boost productivity and creates additional capacity to supply (evaluate)

Answer 9

Might be a time lag

Question 10

Creates extra demand in investment goods industries and can lead to multiplier effects on the level of GDP (evaluate)

Answer 10

Some capital investment replaces labour and therefore might cause unemployment

Question 11

Investment will boost a country’s competitiveness and therefore improve the trade balance (evaluate)

Answer 11

Many other factors affect competitiveness- including the level of the exchange rate

Question 12

The accelerator effect (the link between consumption and investment)

Answer 12

=the link between planned capital investment and the rate of change of national income (GDP)

Change in demand for consumer goods and services will cause a bigger % change in demand for capital goods

Question 13

The negative accelerator effect

Answer 13

When the rate of growth of demand slows then net investment spending by businesses often falls

Question 14

Examples of the accelerator effect

Answer 14

• investment in 4g mobile networks to meet rising household demand and business demand
• more planes for growing airlines especially for low cost short destinations

Question 15

Examples of uk infrastructure investment

Answer 15

-2nd forth road bridge

Question 16

What are the barriers to innovation

Answer 16

• risk aversion (research is expensive whilst rewards are uncertain)
• uncertainty about firms ability to exploit research profitably
• a lack of high skilled workers in key research industries