Investment

Question 1

what factors effect investment?

Answer 1

• interest rates
• confidence
• retained profit
• access to credit
• costs

Question 2

how do interest rates effect investment?

Answer 2

• -investment can be financed by firms borrowing money, interest is paid on a loan, higher interest means lower profits to be made from the investment. More investment at higher rates of interest, more profits made
• investment can be financed by retained profit, high interest rates will mean that firms are getting greater return on savings, so low interest rates will encourage firms to invest.

Question 3

how does business expectations and confidence effect investment?

Answer 3

-if firms expect their sales to increase then they’re more likely to invest -boom economy, investment will rise and VISE VERSA

Question 4

how does retained profit effect investment?

Answer 4

about 70% of industrial and commercial investment is financed through retained profit (UK).
-low retained profit, firms tend not to invest as risk with borrowing

Question 5

how does access to credit effect investment?

Answer 5

some investment is financed through borrowing, access to this money changes
before financial crisis, was easy for firms to borrow money and so more invested, however, after banks were less willing to give loans and so investment decreased

Question 6

how do costs effect investment?

Answer 6

increases in costs like wages or raw materials will reduce profitability or rate of return from investment, and so firms won’t invest.