Notes on Investments and Investment Demand

Investments- Money spent on expenditures on-
-new plats (factories)
-capital equipment (machinery)
-New homes
-inventories (goods sold by producers)
Expected Rates of Return
How do businesses make these investment decisions?
-cost/benefit analysis
.How do business determine the benefits?
-expected rate of return
.How does business count the cost
-interest costs
.How does business determine the amount of investment they undertake?
-compare expected rate of return to interest cost
.if expected return> interest cost then invest and vice versa.

Real(r%) v. Nominal (i%)
. Nominal is the observational rate of interest. Real Real inflation is only known as an ex post facto thing.
Compute real interest rate; i%-m%
r% determines cost of investment decision

Investment Demand curve (ID)
Shape: Downward sloping
Why - When interest rates are higher fewer investments are profitable, when interest rates are low more investments are profitable.

Shifts in interest Demand (ID)
-Cost of production
lower costs causes  shift to the right
Lower business taxes cause a shift to the right
New Technological changes cause a shift to the right
Low capital causes a shift to the right
Positive expectations cause a shift tot he right
and the opposite of all these cause a shift to the left.