according to keynes the most important determinant of investment is

Keynes believed that investment does not depend on the current level of income. This can be achieved through process of innovation, i.e., introduction of new production processes. In the equation C = 60 + 0.6 Y, MPC is A. Empirical studies have shown that the capital stock adjustment theory is quite effective in explaining investment levels. The marginal efficiency of capital is the highest rate of return over cost expected from producing one more unit of a particular type of capital asset. Keynes, states that rate of interest is relatively constant in the short run, but MEC is highly fluctuating. A high rate of inflation, when it is anticipated, can have favourable effects on investment. There­fore, it leads to more investment. Then, the net income which will probably be obtained by the owner is Rs 1,000, i.e., a return 5%. The supply price of capital (i.e., its cost) may also rise but this is a short run factor. Relevance. Similarly, if an investment project does not return sufficient money it will turn out unviable. Secondly, increased current profits may be taken to indicate a higher return on new, future capital projects. one’s speculation partners expectations of profit the price level the initial amount invested Flag this Question Question 5 1 pts Investment appears to be very interest-elastic. So, the investment demand function and the volume of investment moves along with the increases or decrease in the MEC. If the expected (estimated) rate of return (profit) on a project were 20% then having to pay 22% interest for investment funds would lead to a loss — the project would not be economically viable. b. The profit from an investment is equal to the total revenue obtained from it minus the expenses, of which interest is a part. The same thing happens when many businesses find it difficult to collect debts from one another. In many countries, rebates are given for new capital investment, e.g., advantages as regards rates of depreciation. Thus with these factors being assumed constant in the short run, Keynesian consumption function considers consumption as a … This is so because the demand for capital goods is a derived (indirect) demand. (Points : 1.5) The variance of the investment’s return distributionThe standard deviation of the investment’s return distributionThe size of the investmentThe correlation of the investment’s returns with the returns of other investments in the portfolioThe risk-free rate of return In this case, the rate of interest measures the opportunity cost of employing these funds in alternative uses. When business firms struggle to pay-off debts they have incurred in the past, their current investment levels fall. Content Guidelines 2. Welcome to EconomicsDiscussion.net! Another basic principal of Keynesian economics is that economies which invest more than their savings will experience inflation. John Maynard Keynes was an early 20th-century British economist, known as the father of Keynesian economics. According to Keynes, the volume of investment depends on all other factors except national income. According to Keynes, what is the most important determinant of (or influence on) the level of Consumer Spending households undertake in a time period? If the amount of total (gross) new investment taking place happened to just equal the amount of depreciation, the size of the stock of capital employed would remain constant. It explains why the public may hold surplus cash (over and above that demanded due to the other two motives) in the face of interest- earning bonds (and other financial assets). Answer Save. The most important determinant of an investment’s portfolio risk is which of the following? Still have questions? Fear of loss causes deflation and unemployment and, thus, decreases the volume of investment. Question 4 1 pts According to Keynes, the MOST important determinant of business investment is _____. Other Determinants of Investment Demand. Expenditure on producer goods is known as investment or capital formation. The price level. It is likely to reduce the burden of debt- repayment and make it easier — at least for a time — for firms to widen profit margins following an investment. (Points : 1.5) The variance of the investment's return distribution The standard deviation of the investment's return distribution The size of the investment Keynes believed that unemployment was caused by a lack of expenditures within an economy, which decreased aggregate demand. The speculative motive giving rise to the speculative demand for money is the most important contribution Keynes made to the theory of the demand for money. In the Keynesian two sector economy, ADI C. S

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