Theme 2- Investment (key terms)

Question 1

Gross investment

Answer 1

The total investment without any adjustment for depreciation

Question 2

Depreciation

Answer 2

Over time, capital stock becomes old and machines wear out

Question 3

Net investment

Answer 3

Investment adjusted for capital depreciation (minus depreciation)

Question 4

The accelerator

Answer 4

An increase in national income (GDP) results in a proportionately larger rise in capital investment spending

Question 5

Business expectations

Answer 5

What firms expect to happen in the economy: when firms think the economy will grow in future they are more likely to invest more

Question 6

Keynes’ Animal spirits

Answer 6

The theory that business confidence is random and unpredictable

Question 7

Keynesian economics

Answer 7

The economics of John Maynard Keynes
- The belief that the state can directly stimulate demand in a stagnating economy - e.g. by borrowing money to fund public works projects like new roads, housing, schools and hospitals