Investment in Aggregate Demand

Question 1

Factors Affecting Levels of Investment

Answer 1

1. Actual and Expected Demand.
2. Demand for Exports.
3. Interest Rates.
4. Risk.
5. Marginal Efficiency of Capital.
6. Technological Change and Competitiveness.
7. Business Confidence.
8. Bank Willingness to Lend.
9. Government Policy towards investment/business including Corporation tax.
10. Accelerator Effect.

Question 2

Marginal Efficiency of Capital Definition

Answer 2

The expected return on an investment at a given time.

Question 3

Business Confidence Definition

Answer 3

‘Animal Spirits’ is a notion devised by Keynes referring to when, if firms are more confident, they will invest more upon gut instinct. Also, if others are investing, then the firm is more likely to.

Question 4

Accelerator Effect Definition

Answer 4

An increase in national income results in a proportionally larger change in investment.