Investment, interest and GDP Flashcards
1
Q
In the long run, investment:
A
increases capital stock and the size of investment GDP
2
Q
What factors affect expected profitability and planned investment?
A
- Price and productivity of capital goods
- Expectation about future demand for the output of new capital goods
- Earned profits available for investment
- The real rate of interest
3
Q
Why is there an opportunity cost to investment?
A
The firm could’ve earned income from loaning the money out
4
Q
Why is investment affected by the rate of interest?
A
The lower the rate of interest, the greater the number of investment opportunities that will be profitable to undertake
5
Q
What is the IS curve?
A
Shows all the combinations of GDP and interest rate for which aggregate spending equals actual output
6
Q
Why is the IS curve negatively sloped?
A
Because a fall in the interest rate increases investment spending and hence increases equilibrium GDP
7
Q
RE READ SLIDES 13 AND 14 OF LECTURE 19
A
RE READ
