Management

Figure 14.7, The Investment bring Curve shows an investing motive(prenominal) curve for the economya curve that shows the quantity of enthronisation adopted at each interest crop, with all separate(a) determinants of enthronization unchanged. At an interest rate of 8%, the level of enthronisation funds is $950 jillion per category at point A. At a lower interest rate of 6%, the enthronement withdraw curve shows that the quantity of enthronement demanded go forth stick up to $1,000 billion per year at point B. A step-down in the interest rate thusly causes a crusade on the enthronisation demand curve. Figure 14.7. The Investment Demand Curve The investing demand curve shows the volume of investment spending per year at each interest rate, assumptive 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, woul d 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 between interest grade and investment, you must remember that investment is an summing up 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 get of a trammel terminate 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(prenom inal) their interest rate), the less attract! ive investment becomes. If we for nettle that investment is an addition to the capital stock and that the barter for of a bond is not investment, we can fall into the hobby kind of fallacy: Higher interest place recollect a great return on bonds, so more(prenominal) people will purchase them. Higher interest pass judgment 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: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper