Factors that affect investment decisions

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  • Created by: lyd_kate
  • Created on: 06-02-17 10:54
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  • Factors that affect investment decisions
    • The relative prices of capital & labour
      • When the price of capital rises -  in long run labour intensive > capital production (Investment down)
        • Price of capital falls - in long run capital > labour intensive production (Investment up)
    • The nature of technical progress
      • New technology makes business life shorter than actual technical life of a machine since it is now obsolete
        • Early replacement of goods can happen before end of technical life + more investment)
    • Adequacy of financial institutions in the supply of investment goods
      • Investment in fixed capital goods are long term yielding most of expected income
      • Difficult to obtain due to banks &stock market due to their reluctantness to fund long term finance
      • Growth of new methods of lending to firms changed this. eg. Private equity
    • The impact of Govt. policies & activities on investment by the private sector
      • Government fund financial investment, but tax firms
      • More focused on rescuing jobs for more tax, pick losers more as they do not face bankruptcy

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