Why is investment spending a highly volatile component?
What will be an ideal response?
Several factors influence how much businesses want to invest. These include interest rates, tax provisions, technical change, and the strength of the economy. Sometimes these determinants change abruptly, leading to dramatic variations in investment. But perhaps the most important factor accounting for the volatility of investment spending is the state of business confidence, which in turn depends on expectations about the future. Although confidence is tricky to measure, it does seem obvious that businesses will build more factories and purchase more new machines when they are optimistic. Correspondingly, their investment plans will be very cautious if the economic outlook appears bleak.
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The quantity of money demanded is proportional to
A) real GDP. B) the price level. C) the nominal interest rate. D) the real interest rate. E) the inflation rate.
Larry's Lathe-makers Limited produces lathes, which are purchased by furniture manufacturers all over the world. The standard lathe depreciates over a twenty-five-year period. In the national income accounts, the lathes are classified as
A) inventory. B) raw materials. C) capital goods. D) intermediate goods.
The leadership of unions must recognize that they face
A) an economic system that is hostile to the interests of workers. B) a no-win situation whenever they think a strike is necessary. C) a fundamental trade-off between higher wages for members and higher taxes for members. D) a fundamental trade-off between higher wages for members and fewer jobs for members.
An efficient market is a market
A. in which there are no opportunity costs. B. that deals in unlimited resources. C. in which profit opportunities are eliminated almost instantaneously. D. in which long-term profits are guaranteed.