Investment Mindmap
- Created by: Itwasntme193
- Created on: 20-01-21 20:38
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- Investment
- Investment- the addition to the capital stock of the economy
- gross investment measures investment before depreciation (depreciation occurs as the stock wears out over time).
- in recent years, only 1/4 of gross investment represents an addition to the capital stock of the economy.
- investment in human capital is investment in education and training.
- investment in physical capital is investment in aids to production i.e factories.
- investment can be made in both the private and public sectors. In the public sector it is constrained by political considerations.
- gross investment measures investment before depreciation (depreciation occurs as the stock wears out over time).
- The rate of interest- affects the level of investment in 2 ways:
- The rate of economic growth- the accelerator theory
- If the same amount of products are produced each year, Firms will only invest to replace worn out physical capital. There is no point investing further than this level.
- if the economy expands, firms need to increase their investment so they can produce more, same goes the other way.
- I - investment in time period t, Y -Y - change in real income during year t, a is accelerator coefficient, it is the capital output ratio.
- the capital output ratio is the amount of capital needed in an economy to produce a given quantity of goods.
- I - investment in time period t, Y -Y - change in real income during year t, a is accelerator coefficient, it is the capital output ratio.
- the accelerator theory is that I is linked with changes in output or Y.
- Costs- private sector firms need to make a profit. They need to sell products made from an investment and keep their costs per unit below selling price
- increasing costs will reduce the rate of return from investment, which should decrease investment.
- business expectations and confidence- more confidence= more investment. animal spirits cannot be measures, they are a feeling
- the world economy- if its booming, the demand for exports should increase which leads to an increase in domestic investment.
- access to credit- when more loans are available, more investment is likely to happen.
- retained profit- if firms don't have a lot of retained profits, they are unlikely to invest.
- the influence of government and regulations-
- governments can influence investment in particular sectors:
- by cutting taxes on profits, this increases the rate of return on investments
- or by guaranteeing loans to firms from banks
- governments can influence investment in particular sectors:
- Investment- the addition to the capital stock of the economy
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