Q.12.2 Identify the primary determinant... [FREE SOLUTION]

Chapter 12: Q.12.2 (page 253)

Identify the primary determinants of planned investment

Short Answer

Expert verified

The primary determinants of planned investments are as follows:

Interest Rates, Expectations, Incomes or the Profits, Technology Used, The Policy of the Government, Cost of Capital Goods, The Stock of the capital, etc.

Step by step solution

Introduction

Any kind of investment will lead to increase in the capital in the long run.
And increase in the capital will lead to the increase in the production of goods and services.
There are many factors which affects the investment decision of any consumer.

Explain the factors

There are many factors affecting the decision of planned investment of an individual. Some of them are given as :

Governmental Policies: The government, in any economy performs the prime role of determining the kind or the amount of investment that is going to happen. This is known as Government's Fiscal Policy. The starting point of the Government's Fiscal Policy is the investment in the tax credit. With investment increasing for the tax credit, the investment level overall in an economy rises.
Technology: If there is any implementation of any new technology in the economy then the investment level will rise. For example, with advanced technologies like computers used in various sectors of an economy, the investment in computer technology increases.
Expectations of the Consumers and Producers: If the expectations of the consumers and producers present in an economy rise then there will be an increase in the level of investment.
Interest Rates: The interest rates and the investments in the economy are inversely proportional to each other, which means that if the interest rate is high then in that case it will be less expensive to invest. Similarly, if the interest rates are low then in that case investment in the economy will be costlier.