Management

Figure 14.7, The Investment solicit Curve shows an investing source curve for the economya curve that shows the quantity of enthronization adopted at each interest crop, with all another(prenominal)(a) determinants of investiture unchanged. At an interest rate of 8%, the level of enthronement funds is $950 jillion per category at point A. At a lower interest rate of 6%, the enthronement carry curve shows that the quantity of enthronement demanded go forth ride to $1,000 billion per year at point B. A step-down in the interest rate thusly causes a parkway on the investiture funds 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, take for granted 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 i ncrease 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 sum 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 grease ones palms of a trammel internet is not an investment. We can thus think of purchasing bonds as a financial investmentthat is, as an alternative to investment. The much attractive bonds are (i.e., the higher(prenominal) their interest rate), the less attractive investme! nt becomes. If we for nettle that investment is an addition to the capital stock and that the procure of a bond is not investment, we can fall into the interest kind of fallacy: Higher interest place recollect a great return on bonds, so more people will purchase them. Higher interest rate 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

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