2 - AD - Investment Flashcards
(8 cards)
1
Q
What is investment?
A
Addition to capital stock of economy
2
Q
Gross investment
A
Investment before depreciation
3
Q
Depreciation
A
Value of capital stock that falls in value over time as it wears out or is used up
4
Q
Net investment
A
Gross investment - depreciation
5
Q
Why do firms invest?
A
- to expand business and increase output capacity
- reduce average costs of production due to economies of scale
- increase efficiency and productivity through innovation and tech progress
- meet increase in market demand and increase market share
- expand firms product range
- replace depreciated capital
- increase competitiveness
6
Q
Impact of investment on AD and AS
A
- adds to AD causing SR growth and lower unemployment
- successful investment adds to economy’s capacity, LRAS
7
Q
Factors influencing investment
A
- IR
- availability of finance
- demand for final product
- business confidence
- corporate taxes
- business regulation
- tech change
8
Q
How does investment influence the macroeconomy?
A
- creates extra demand in investment goods industries
- injects money into circular flow (multiplier effect)
- booths SR and LR growth
- new capital boosts productivity and increases capacity to supply
- improves competitiveness, improving trade balance
- improves infrastructure, more efficient
- help create new jobs
- help reduce inflationary pressure
