2.2.3 Flashcards
What is investment?
Spending on capital goods including plant and machinery and infrastructure.
What does business investment include?
-Cultivated assets
-intellectual property products
-Buildings and structure
What is financial capital?
Funds which are available to finance the production or acquisition of real capital.
What is gross investment?
Total investment on new capital inputs
What is net investment?
Gross investment adjusted for capital consumption
If gross investment in a given year is higher than capital consumption what happens to net investment?
It is positive, and the size of an economy’s capital stock will grow.
What factors influence business investment?
-Actual and expected demand
-The cost of capital
-Availability of borrowing
-Business taxes
-Business confidence
-Change of technology
-Government intervention
What is the paradox of thrift?
Higher saving and reduced investment both reduce demand and incomes, causing an economic contraction.
What is the accelerator effect?
The relationship between planned capital investment and the rate of change of national income.
What is an example of the accelerator effect?
Investment in 4G mobile networks to meet rising household and business demand.
What is the negative accelerator effect?
When the growth of demand in an industry slows, net investment spending by businesses often falls.
As investment is about the purchase of capital what will this lead to an increase in?
The economy’s productive potential, shown by an outwards shift in the PPF and long-run aggregate supply curve.
