Lesson 15 - Investment Flashcards
What is investment?
Purchase of goods that are not consumed today but are used in the Future to create economic wealth
Addition of capital stock to the economy
Describe UK investment
GDI is spending on fixed assets + net charges in the level of inventories
What are fixed assets?
Fixed Assets - Includes machinery + equipment purchases, long term construction
What are inventories?
Stocks of goods held by firms to meet temporary or unexpected fluctuations in production or sales
Why does investment happen?
Replace capital stock
New technologies emerge
AD increases, firms must increase capacity
Change in interest rates + amount of available loans
Change in profits, can be reinvested
What is Gross Investment?
Total investment on new capital inputs
What is Net Investment?
Gross investment adjusted for depreciation of capital
When was there a significant rise in UK investment + why?
Late 90s + early - mid 2000s due to boom + credit crunch
When was there a significant fall in UK investment + why?
Early 90s + 2008-9 due to recession
Which factors can influence investment?
Interest rates
Business expectation + confidence
Corporate Tax
Spare Capacity
Level of Competition
Capital Costs
How can interest rates influence investment?
Rates rise, investment discouraged
Spend < Save
How can business expectation + confidence influence investment?
Firms more willing to invest under high confidence
How can corporate tax influence investment?
Higher the corp. tax, lower the investment
How can capacity influence investment?
More spare capacity, less investment needed
Firms + nations invest in order to expand
How can level of competition influence investment?
More competition, more investment
Nations + firms invest in order to remain ahead
