HideShow resource information
View mindmap
  • Investment
    • Changes in real disposable income
      • If real disposable income is increasing, demand for consumer goods and services are also likely to increase
        • This may encourage firms to expand their capacity
      • However, a rise in disposable income may not be sufficent to encourage firms to invest.
      • Firms will also have to believe that a rise in demand will last and their existing capital goods aew not sufficient enough to produce extra output
    • Expectations
      • Firms are more likely to invest if they feel optimistic about future economic prospects
      • The extent and speed of changes in expectations are the main reasons for the volatility of investment
    • Capacity Utilisation
      • Firms are more likely to invest if they are currently operating close to full capacity
    • Corporation tax
      • Corporation tax is a tax on firm's profits. A cut will increase the firms profits which can result in higer investment
    • The Rate of Interest
      • A rise in the interest rate would be likely to reduce investment
      • It will increase the opportunity cost of investment e.g. the profits could be gaining higher interest in the bank
      • A higher interest rate would make it more expensive to borrow and may discourage investment
      • A change in the rate of interest would effect the cost of investment
      • A rise in interest rates reduces demand for shares
    • Advances in Technology
      • A firm may buy new capital equipment if it thinks it will produce better quality/ more efficient products
      • In both cases the firm would anticipate higher demand/ more products that are cheaper to produce. This will increase profit and encourage competition


No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Macroeconomic indicators resources »