Macro - Invetment (I) Flashcards
Gross investment
Gross investment is the total amount that the economy spends on new capital. This figure includes an estimate for the value of capital depreciation
Net investment
Net investment is the total amount of money that a company spends on capital assets, minus the cost of the depreciation of those assets.
How does the rate of economic growth affect investment?
Positive economic growth leads to further investment as companies will be profiting more and therefore expanding.
How does business expectations & confidence affect investment?
If firms believe there will be an increase in demand for their goods/services in the future then their marginal propensity to invest is likely to increase.
How does Keynes & “animal spirits” affect investment?
Describes the emotional and instinctive side of humans (helps to understand the level of confidence and why this influence their decisions)
How does the demand for exports affect investment?
If demand for exports increases, then so will the demand for domestic goods/service. In order to match this increase in demand some firms may increase their investment into capital goods in order to increase productive potential.
How does interest rates affect investment?
a decrease in interest rates allow firms to borrow money at a lower rate so investment will increase. Visa versa
How does the availability of credit affect investment?
high availability of credit = larger amount of investment (easier to take out loans as rates of interest will be lower leading to more loans).
How does the the influence of government regulation affect investment?
Regulations for example damage to environment, abused labour, and immigration laws means its harder for the investment to be used.
