Investment Demand
Notes from 2/22/16
Investment?: Money Spent or Expenditures on:
-New Plants (Factories)
-Capital Equipment (Machinery)
-Technology (Hardware and Software)
-New Homes
-Inventories (Goods Sold by Producers)
Expected Rates of Return
How do businesses make investment decisions?:
-Cost/Benefit Analysis: How much is it going to cost me? What do I get out of it?
How do businesses determine the benefit?
-Expected Rate of Return
How do businesses count the cost?
-Interest Costs
How do businesses determine the amount of investment they undertake?
-Compare expected rate of return
-If Expected Return > Interest Cost THEN invest
-If Expected Return < Interest Cost THEN DO NOT invest
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