Economics
Investment Spending
Investment spending refers to the expenditure by businesses on capital goods such as machinery, equipment, and buildings, with the aim of increasing future production capacity. It is a key component of aggregate demand and can have a significant impact on economic growth. Investment spending is influenced by factors such as interest rates, business confidence, and expectations of future profitability.
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5 Key excerpts on "Investment Spending"
eBook - PDF- Brian Kettell(Author)
- 2001(Publication Date)
- Butterworth-Heinemann(Publisher)
This would also indicate squeamishness about the economy. In practice financial market participants do not usually react to consumer credit data. It is old news by the time it is reported, having followed all the other consumer indicators. Investment Spending, government spending and foreign trade Investment Spending refers to the creation of capital: the purchase or putting in place of buildings, equipment, roads, houses and the like. Sound investment in capital results in future benefits that are more valuable than the present cost. Capital is also able to generate future benefits in excess of cost by increasing the productivity of labour. A person who has to dig a hole can dig a bigger hole with an excavator than with a shovel. A computer can do in several seconds what it took bookkeepers hours to do only a few years ago. This increase in productivity makes it less costly to produce products. While many factors influence business, people’s desire to invest, the state of business confidence, which in turn depends on expectations about the future, are very important. While difficult to measure it does seem obvious that busi-nesses will build more factories and purchase more machines when their expectations are optimistic. Conversely, their investment plans will be very cautious if the economic outlook appears bleak. There are fewer indicators of Investment Spending than there are of consumer spending because Investment Spending accounts for only about one-fifth of gross domestic product. Despite its smaller contribution to GDP, Investment Spending is significant because the volatility inherent in investment spend-ing exacerbates the business cycle. Growth in investment expenditure outpaces GDP growth during a cyclical upswing
eBook - PDFEconomics
Theory and Practice
- Patrick J. Welch, Gerry F. Welch(Authors)
- 2016(Publication Date)
- Wiley(Publisher)
Since most businesses can delay major capital expenditures until profit expectations increase, this adds to the reasons for fluc- tuations in business spending. An important factor that influences expected profit and Investment Spending is expectations of future overall levels of economic activity. Fear of a recession can dis- courage Investment Spending as businesses speculate that falling demand and growing inventories of unsold goods will make their operations unprofitable. Likewise, expec- tations of healthy sales and a surge in economic activity can bring about an increase in business spending. Predictions of economic doom and gloom coupled with the reality of falling demand and rising unemployment from 2008 through 2010 helped to scare Real Gross Investment (Billions of Dollars) Year 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1.8 1.9 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 $2.8 FIGURE 5.7 Real Gross Investment, 2000–2014 a Investment Spending can fluctuate widely from year to year and is a major cause of changes in economic activity. a Numbers are in chained 2009 dollars; 2014 number is preliminary. Source: Economic Report of the President (Washington, DC: U.S. Government Printing Office, 2015), Table B‐2. 130 Chapter 5 Foundations of the Macroeconomy businesses into postponing Investment Spending plans. The economy was so skittish that the stock market reacted to many announcements, even the possible spread of swine flu. The price tag on a business’s investment plans can be staggering. Imagine the construction costs for a new stadium for one of the major league baseball teams or even for a medical center in your hometown. Since most businesses borrow the funds for their Investment Spending, the interest rate that they must pay to borrow greatly influences the level of Investment Spending.
- Wesley C. Mitchell(Author)
- 2017(Publication Date)
This is calculated to bring about a purely mone-tary and price inflation. In other situations the effect is likely to be a mixed one; and if production is materially short of capacity, the main effect may be on physical output and real income, rather than on the price level. The volume of spend-ings is important, not merely to the monetary flow of income, but to the real flow. And now a word of caution, as to the import of the spending theory of prosperity. It should not be taken as in contradic-tion of the idea that a nation gets richer because it is opening up more and more productive resources and exploiting them. Healthy spending, capable of leading to sound and enduring expansion, must have expanding productive powers and re-sources as a basis; otherwise it is a purely temporary shot in the arm—if indeed it has any expansionary effect at all. It is an easy transition from the idea that it is good for a nation to spend its income to the idea that it must be still better to spend more. But it is a transition that is not self-evident and raises fresh problems. The idea that spending may initiate movements seems to be true. But the idea that in order to add many billions to our national income, all you have to do is to spend, regardless of method or circumstances—this I INVESTMENT IN RELATION TO BUSINESS ACTIVITY 43 believe to be a perversion, and at present a dangerous one. We shall return to this topic later. S H O R T CYCLES OF BUSINESS ACTIVITY The shorter business cycles are largely cycles in capital out-lays, plus the production and sale of durable consumers' goods (housing and automobiles being the outstanding categories). Under some terminologies, these latter would also be capital outlays—consumers' capital—and in any case they have some of the same characteristics. Both represent a type of outlay made with an eye to the future, and they may be postponed or speeded up to a greater extent than is natural for other consumers' goods.
eBook - PDF- Rhona C. Free(Author)
- 2010(Publication Date)
- SAGE Publications, Inc(Publisher)
31 AGGREGATE EXPENDITURES MODEL AND EQUILIBRIUM OUTPUT MICHAEL R. MONTGOMERY University of Maine A ggregate expenditures (AE), the total spending in an economy on final goods and services over a designated time period, is the core demand-side concept in modern macroeconomics (a final good is a newly produced good bought by a user who will finally dispose of that good by using up its services). Following the lead of John Maynard Keynes in his General Theory of Employment, Interest and Money (1936/1965) and early Keynesians such as Alvin Hansen (1953) and Paul A. Samuelson (1939), AE is typically broken down by major type of purchaser into consumption expenditures, invest-ment expenditures, government expenditures, and the sum of exports less imports (known as net exports). The study of these categories in recent decades has been aided con-siderably by the development of the National Income and Product Accounts (NIRA) accounting system, which is used by governments in measuring and reporting the sizes of these categories. The sum of this spending is known as gross domestic product, or GDP. Specifically, • Consumption expenditures are expenditures on final goods (excluding housing) and services by consumers, produced during the accounting period and in the economy under study. • Investment expenditures are final goods and services purchased by businesses and buyers of homes, produced during the accounting period and in the economy under study. They include nonresidential structures of all types, plus all producers' durable equipment, plus residential structures, plus all inventories produced in the accounting period (some of these inventories may be planned, or desired, inventories; others may be unplanned, or undesired, inventories—unplanned inventories being acquired when sales are less than anticipated). Investment expenditures do not include financial transactions such as the purchase of stocks and bonds.
eBook - PDFDepression and Reconstruction
A Study of Causes and Controls
- Eleanor Lansing Dulles(Author)
- 2016(Publication Date)
Investment, as influenced by the expert or the man in the street, is in any case the main point of leverage for shifting long-run tendencies. Since capitalistic society depends for its effectiveness on the steady flow of savings and investment, the rate and regularity of this flow is a matter of predomi-nating importance. The use of the machine and the building of large reservoirs of power, the heavier types of transporta-tion facilities, and all the elaborate durable equipment of modern society—its ships, its planes, its mines, its bridges— depend on the regular diversion of a part of the stream of goods and services away from immediate consumption. The savings necessary for this investment have assumed at least three different forms during as many centuries. In the early years of capitalism, the surplus set aside as pro-ducers' goods was a result in the main of the accumulation of funds by promoters and their close associates, who cut their own spending to a minimum and pooled their resources in common ventures for the sake of future gains. Thus, at first, the link between saving and investing was close and in-escapable. A marked change in the process of accumulation 1 The National City Bank of New York, Monthly Bank Letter (New York, January, 1931), pp. 11-13. INVESTMENT AS AN AID TO BALANCE 285 came with the rapid development of the joint stock com-pany and the change in personal investment in the eighteenth century. Then in the nineteenth and twentieth centuries the organization of security markets to deal in the growing num-ber of negotiable shares made possible a much wider partici-pation in investment and the absorption of stocks by millions of new investors. Parallel, for a time, with this growth of active stock mar-kets but reaching its real importance somewhat later, came the large expansion of bank credit. The wide use of collateral as a basis for credit meant that the investment process was a means of creating funds as well as of absorbing them.
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