Thursday, March 3, 2016

(2-23-16) Unit III Investment Demand

Investment Demand
Investment- $ spent (expenditures) on new plants/factories, capital equipment, technology, new houses, and inventory.

Expected Rates of Return
-Invested upon cost/benefit
-Benefits from expected rate of return
-Cost of Interest costs
-Amount invested to comparison of expected rate of return to interest cost
Exp. Return> Interest Cost = Yes
Exp. Return<Interest Cost = No
-r% vs. i%
-Nominal = observable rate of interest; Real takes out inflation [known ex post facto]
-r% = i% - p% =>base investment decision

The Curve
-Downward sloping due to high rates = less investment and likewise vise versa

Shifts
-Cost of production: low = Right high= Left
-Business Taxes: low = Right high= Left
-Tech. changes: new = Right lacking(missing) = Left
-Stock of capital: low = Right high= Left
-Expenditures: positive = Right negative= Left

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