Planned Investment

  1. Investment
    Purchases by firms of new buildings, equipment, and additions to inventory
  2. Planned Investment
    The additions to capital and/or inventory that are planned by firms
  3. Actual Investment
    The amount if investment spending that actually takes place
  4. Future Value
    The amount a sum will be worth at a given date, if its allowed to earn interest at some expected rate
  5. Present Value of a future sum
    The amount of money needed today to yield a particular sum at some point in the future
  6. Present value formula
    PV = FV/(I+r) to the nth power
  7. Present value < Cost
    Not a good investment
  8. What does Present value explain?
    Why investment spending tends to fall (all else being equal) when the interest rate rises
  9. What is represented on the X and Y axis of the investment function?
    • X axis: Investment Spending
    • Y axis: National Interest rate
  10. What changes causes the investment function to shift dramatically?
    • Interest rates
    • Technology
    • Business expectations of future profits
    • Politics
    • "Animal spirits..."
  11. What is equilibrium in relation to the investment function?
    • Price of whats offered for sale = Price of what people want to buy
    • Agg. Supply = Agg. Demand
    • Y = C + Ip + G
Card Set
Planned Investment
Study for test 2