Investment Spending Investment spending is volatile(much more discretionary.0 it depends more on expectation of the future and the interest rate. it does not depend on the income. it is autonomous spending. Investment spending is horizontal line. its independent of income and since its autonomous, it does not change the slope, the graph only increase by its number. determinants of investment 1. Change in interest rate - i goes down => I goes up
2.Change in the prices of capital goods - is it worth the purchase and how does it impact profitability(before they can buy or postpone the purchase)
3.Change in the age of capital goods - if its old => I will go up
4. Amount of spare capacity - (ware house /storage capacity) - if its low => I goes up
5.Biz xpectation - optimism about the future => I goes up
6. Govt regulations(red tape/ govt beauracracy) is up => I goes down
“Investment spending generally relates to the creation and acquisition of capital goods with the intent of using them to try to stimulate economic production. A government might want to use investment spending in an attempt to raise the effectiveness of inner agency procedures. A government might want to use investment spending in an attempt to raise the effectiveness of inner agency procedures.”[i]
Investment spending is when business buy goods from other business. it can be put off where as consumption spending can not. Investment spending is autonomous and the amount of spending depends on the interest rates.
investment spending will be a straight line on the graph since it is only autonomous. Determinants of investment spending
Change in interest rates- if rates go down then investment spending goes up
changes in the price of capital goods- how does it impact profitability, is it worth the purchase or can it be put off
change in the age of capital goods- if durable goods are old the investment spending goes up
amount of spare capacity- this is the amount of space in warehouse. If you are running out of space investment spending goes up
business expectations- if you are optimistic about the future then investment spending goes up
government regulations(red tape)- if the amount of red tape goes up the more money and harder it is to open so investment spending goes down.
Dr. Stephanie Powers, "Aggregate Demand", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)
Investment spending is volatile(much more discretionary.0 it depends more on expectation of the future and the interest rate. it does not depend on the income. it is autonomous spending. Investment spending is horizontal line. its independent of income and since its autonomous, it does not change the slope, the graph only increase by its number.
determinants of investment
1. Change in interest rate - i goes down => I goes up
2.Change in the prices of capital goods - is it worth the purchase and how does it impact profitability(before they can buy or postpone the purchase)
3.Change in the age of capital goods - if its old => I will go up
4. Amount of spare capacity - (ware house /storage capacity) - if its low => I goes up
5.Biz xpectation - optimism about the future => I goes up
6. Govt regulations(red tape/ govt beauracracy) is up => I goes down
“Investment spending generally relates to the creation and acquisition of capital goods with the intent of using them to try to stimulate economic production. A government might want to use investment spending in an attempt to raise the effectiveness of inner agency procedures. A government might want to use investment spending in an attempt to raise the effectiveness of inner agency procedures.”[i]
[i] Conjecture Corporation, What is Investment Spending, Accessed on April 13, 2012, http://www.wisegeek.com/what-is-investment-spending.htm.
Investment spending is when business buy goods from other business. it can be put off where as consumption spending can not. Investment spending is autonomous and the amount of spending depends on the interest rates.
investment spending will be a straight line on the graph since it is only autonomous.
Determinants of investment spending
Dr. Stephanie Powers, "Aggregate Demand", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)