Management

Figure 14.7, The Investment shoot Curve shows an investing agent curve for the economya curve that shows the quantity of investiture funds adopted at each interest crop, with all former(a)(a) determinants of investiture unchanged. At an interest rate of 8%, the level of investiture funds is $950 jillion per category at point A. At a lower interest rate of 6%, the enthronement entreat curve shows that the quantity of enthronement demanded go forth break to $1,000 billion per year at point B. A lessening in the interest rate thusly causes a faeces on the enthronement demand curve. Figure 14.7. The Investment Demand Curve The investment demand curve shows the volume of investment spending per year at each interest rate, assuming all other determinants of investment are unchanged. The curve shows that as the interest rate falls, the level of investment per year rises. A reduction in the interest rate from 8% to 6%, for example, would increase investment from $950 billion to $1,000 billion per year, all other determinants of investment unchanged. Heads Up! To make sense of the relationship among interest grade and investment, you must remember that investment is an attachment to capital, and that capital is something that has been produced in order to produce other goods and services. A baffle is not capital.

The procure of a trammel lolly is not an investment. We can thus think of purchasing bonds as a financial investmentthat is, as an alternative to investment. The to a greater extent attractive bonds are (i.e., the higher(prenominal) their interest rate), the less attractive investment becomes. If we for nettle that investment i s an addition to the capital stock and that ! the bargain for of a bond is not investment, we can fall into the avocation kind of fallacy: Higher interest pass judgment represent a great return on bonds, so to a greater extent people will purchase them. Higher interest evaluate will therefore lead to greater investment. That is a mistake, of course, because the purchase of a bond is not an investment. Higher interest rates increase...If you want to get a full essay, order it on our website: OrderEssay.net

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