Investment in Macroeconomics

These flashcards cover key concepts related to investment in macroeconomics, including definitions, examples, and the impact of various factors on investment decisions.

What role does investment play in economic growth according to macroeconomics?

Investment is directly related to economic growth and is the most volatile component of GDP.

What was Toyota's strategic investment in the early 1990s?

Toyota invested in hybrid electric vehicle (HEV) technology, anticipating future environmental concerns and regulatory changes.

How did the 2008 Global Financial Crisis impact investment?

Investment plummeted after the crisis due to the collapse of the financial system, leading to severe economic consequences.

What are the two main tools for comparing sums of money at different points in time in macroeconomics?

Compounding and discounting.

What does the term 'investment' refer to in macroeconomics?

Spending on new capital assets that increase the economy’s productive capacity.

What is capital stock?

The total quantity of capital at a point in time.

What leads to depreciation in capital assets?

Wear and tear, obsolescence, accidental damage, and aging.

What is future value in compounding formulas?

Future value in t years equals Present value multiplied by (1 + r)^t.

What does present value indicate in finance?

The amount you need to invest today to produce a specified benefit in the future.

What is the relationship between investment and real interest rates according to macroeconomic analysis?

There is an inverse relationship between investment and the real interest rate.

What determines real interest rates in the economy?

The balance of saving and investment, as well as the supply and demand in the loanable funds market.

Why do we adjust for depreciation when calculating investment worthiness?

To accurately reflect the reduction in value of capital assets over time.

What influences the demand curve for loanable funds?

Technological advances, expectations, corporate taxes, lending standards, and cash reserves.

What is business investment?

Spending by business on new capital assets

What are inventories as a component of Investment?

Spending on accumulated raw materials, work-in-progress, and unsold goods

What is housing investment?

Spending on building or improving houses or apartments