42917
Investment
- Real disposable
income
- If real disposable income is rising, then
demand for goods/services will also rise.
This will encourage firms to increase
capacity
- Firms will have to believe rise in
demand would last and that existing
capital goods is not sufficient enough
- If real disposable income is rising, then
demand for goods/services will also rise.
This will encourage firms to increase
capacity
- Expectations
- More likely to invest if firms
feel optimistic for the future
- More likely to invest if firms
feel optimistic for the future
- Capacity Utilisation
- Likely to invest if
operating close to full
capacity
- Likely to invest if
operating close to full
capacity
- Current Profit Levels
- High profit encourage investment as they
provide finance and increases firms' optimism
- High profit encourage investment as they
provide finance and increases firms' optimism
- Corporate Tax
- Cut in tax increases profit levels
- Government could provide
investment subsidies
- Cut in tax increases profit levels
- Rise in Interest Rate
- Increase opportunity
cost. Profit could be
used to invest, save in
a bank or distribute to
shareholders as dividends
- Expensive to borrow to buy
capital goods
- Consumption may
fall-reduce investment
- Reduce demand for
shares (shareholders
may place money in
bank instead). decrese in
price level reduces funds
for investment
- Increase opportunity
cost. Profit could be
used to invest, save in
a bank or distribute to
shareholders as dividends
- Advances in
Technology
- Firm buy new capital good if products is produced
at better quality or cheaper. Increase profit and
demand
- Firms invest to
stay competitive
- Firm buy new capital good if products is produced
at better quality or cheaper. Increase profit and
demand
- Cheap Capital
Goods
- Allows more firms to afford too invest
- Firms may expand capacity
- Allows more firms to afford too invest
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