Factors that affect investment decisions
- 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)
- When the price of capital rises - in long run labour intensive > capital production (Investment down)
- 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)
- New technology makes business life shorter than actual technical life of a machine since it is now obsolete
- 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
- The relative prices of capital & labour
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