ch.29 Investment and Economic Activity

This set of flashcards covers key vocabulary related to investment and its impact on economic activity, as discussed in the lecture notes.

Gross Private Domestic Investment (GPDI)

Additions to the stock of private capital that includes construction of business structures, producers’ equipment, residential investment, and changes in private inventories.

Net Investment

Gross investment minus depreciation; indicates the increase or decrease in the capital stock.

Depreciation

The reduction in the value of capital equipment over time due to wear and tear, recorded as consumption of fixed capital.

Investment Demand Curve

A curve that shows the quantity of investment demanded at each interest rate, assuming other factors are held constant.

Multiplifier Effect

The phenomenon where an initial change in investment leads to a greater overall change in aggregate demand.

Capacity Utilization

The percentage of a firm's capital that is being used in production; higher utilization typically leads to increased investment.

Volatility of Investment

Investment is the most variable component of GDP, with significant year-to-year fluctuations relative to consumption and government purchases.

Aggregate Demand Curve

A graphical representation of the total amount of goods and services demanded across all levels of an economy at a given overall price level.

Components of Investment

Includes nonresidential structures, nonresidential equipment, residential investment, and changes in inventories.

Opportunity Cost of Investment

The potential returns foregone from alternative investments when funds are used for a specific investment.