ON TO THE THEORY OF AGGREGATE DEMAND

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ON TO THE THEORY OF AGGREGATE DEMAND We have now completed our introduction to the basic concepts of macroeconomics. We have examined the determinants of consumption and investment and seen how they can fluctuate from year to year, sometimes quite sharply. At this point, macroeconomics branches into one of two major themes-business cycle sand economic growth .. In the chapters that […]

Shifts in the Investment Demand Curve

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Shifts in the Investment Demand Curve We have seen how interest rates affect the level of investment, Investment is affected by other forces as we. For example, an increase in the GDP will shift the investment demand curve out, as shown in Figure ~2-10(a) on the next page. Finally note the importance of expectations. What if investors […]

THE INVESTMENT DEMAND CURVE

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THE INVESTMENT DEMAND CURVE In analyzing the determinants of investment, we focus particularly on the relationship between interest rates and investment, is crucial because interest rates (influenced by central banks) are the major instrument by which governments influence investment. To show the relationship between interest rates and investment. economists use a schedule called the demand. Consider a simplified economy where firms can invest indifferent […]

Expectations

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Expectations The third element in the determination of investment is profit expectations and business confidence. Investment is, above all, a gamble on the future, a bet that the revenue from an investment will exceed its costs. If businesses are concerned that political conditions in Russia are unstable, they will be reluctant to invest there. Conversely, because businesses believe (rightly or wrongly) that. […]

Costs

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Costs A second important determinant of the level of investment is the costs of investing. Because investment goods last many years, reckoning the costs of investment is somewhat more complicated than doing so for other commodities like coal or wheat, For durable goods, the cost of capital includes not only the price of the capital good but also the interest rate” that […]

Revenues

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Revenues An investment will bring the firm additional revenue if it helps the firm sell more product. This suggests that the overall level of output (or Gnp) will be an important determinant of investment. When factories are lying idle, firms have relatively little need for new factories, so investment is low. More generally. Investment depends upon the revenues that will […]

DETERMINANTS OF INVESTMENT

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DETERMINANTS OF INVESTMENT Why do businesses’ invest? Ultimately, businesses buy capital goods when they expect that this action will earn them a profit-that is, will bring them revenues greater than the costs of the investment. This simple statement contains the three elements essential to understanding investment: revenues, costs, and expectations. Get Any Economics Assignment Solved for US$ 55

B. INVESTMENT

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B. INVESTMENT The second major component of private spending is investment. Investment plays two roles in macroeconomics. First. because it is a large and volatile component of spending. investment often leads to changes in aggregate demand and affects the business cycle. In addition. investment leads to capital accumulation. Adding to the stock of buildings and equipment increases the nation’s potential output and promotes […]

Alternative Measures of Saving

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Alternative Measures of Saving You might at this point ask. “If people are saving so little, why are there so many rich people?” This question raises an important point about measuring personal saving. Saving looks different to the household than to the nation as a whole. This is so because saving as measured in the national income and product accounts is […]

The National Consumption Function

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The National Consumption Function we may conclude that the level of disposable income is the primary determinant of the’ level of national consumption. Armed with-this result, we can plot recent annual data on consumption and disposable income in Figure 22-7. The scatter diagram shows data for the period 1970-1999. with each point representing the level of consumption and disposable income for a […]