investment + AD

Question 1

investment

Answer 1

when firms spend money on capital goods to increase productive capacity

Question 2

determinants of investment

Answer 2

-interest rates: low interest rates, low cost of borrowing, therefore invesment. hurdle: the rate of return needed for investment projects, if IR is low, investment increases
-business confidence: looks at expected profit and the expected demand within the economy
-corporation tax: looks at retained profit, it is a tax on profits, if it is low, more retained profit and therefore more investment
-spare capacity: if firms are operating near their spare capacity, they will invest
-level of competition: if there is a lot of competition, there will be more investment

Question 3

the accelerator effect

Answer 3

-this is when there is an increase in the rate of RGDP, encouraging firms to invest
-it is linked to. business confidence