ON TO THE THEORY OF AGGREGATE DEMAND

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...

Shifts in the Investment Demand Curve

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...

THE INVESTMENT DEMAND CURVE

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...

Expectations

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...

Costs

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...

Revenues

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...