DETERMINANTS OF INVESTMENT

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...

B. INVESTMENT

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...

Alternative Measures of Saving

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...

The National Consumption Function

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....

Wealth and Other Influences

Wealth and Other Influences A further important determinant of the amount of consumption is wealth. Consider two consumers, both earning S50,000 per year. One has $200,000 in the bank, while the other has ~o savings at all. The first person may consume part of wealth,...

Current Disposable Income.

Current Disposable Income. Figure 22-6 shows how closely consumption followed current disposable income over the period 1929-1999. The only period men income and consumption did not move in tandem was during World War II, when goods were scarce ‘and rationed and...