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"The Relationship between The Nominal Interest Rate On Bonds and Desired Investment Expenditure Appears To Be An Unstable One, Which Is Exactly What The Theory Of Investment Expenditure Predicts." Explain And Discuss.
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"The Relationship between The Nominal Interest Rate On Bonds and Desired Investment Expenditure Appears To Be An Unstable One, Which Is Exactly What The Theory Of Investment Expenditure Predicts." Explain And Discuss. A simple version of The Theory of Investment Expenditure is shown above, that investment expenditure depends on two factors: production (Y) and the interest rate (i), and can be expressed as a function in terms of Y and i. There is a positive correlation between investment and output/production, which if thought about is obvious; a firm that is facing an increase in sales will be more willing to invest in a machine or factory to accomidate its rise in sales (the converse is also true, that if a firm is facing a decrease in sales it will be less likely to invest in an unnecessary machine-it can already meet production and is not looking to expand). There is a...
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