Economics 2.2.3 Word Scramble
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| Question | Answer |
| investment | spending on capital goods including plant & machinery and infrastructure |
| what can business investment include? | cultivated assets, intellectual property products and other buildings or structure |
| cultivated assets | animals and plants that are managed by humans and that provide repeat products to their owners |
| financial capital | funds which are available to finance the production or acquisition of real capital |
| gross investment | total investment on new capital inputs |
| net investments | gross investment adjusted for capital consumption(depreciation) as some new investment is needed each year to replace worn out machinery |
| gross investment is higher than capital consumption | net investment is positive and the size of an economy’s capital stock grows |
| factors affecting the level of private sector investment spending | actual and expected demand/cost of capital(rate of interest on loan or opportunity cost)/business taxes(post-tax returns on projects)/state of business confidence(animal spirits)/pace of changing tech |
| Keyne’s animal spirits | refers to a mix of confidence, trust, mood and expectations which fluctuate quickly as communities change their thinking |
| animal spirits when confidence is low | individuals and businesses save more and as demand and profits are less, cut back on production and postpone/cancel capital investment projects(economic activity will suffer) |
| paradox of thrift | higher saving and reduced investment reduce demand and incomes in the circular flow so there is an economic contraction |
| accelerator effect | relationship between planned investment and rate of change of national income |
| positive accelerator effect | a given change in demand for consumer goods and services causes a bigger percentage change in demand for capital goods, expecting sustained demand firms increase spending and investment to increase supply capacity |
| negative accelerator effect | when demand in an industry slows, net investment spending by businesses falls |
| infrastructure | the basic physical systems of a business, region, or nation and often involves the production of public goods or production processes |
| UK infrastructure | UK lacks in quality of infrastructure assets |
| why does the UK lack in infrastructure? | projects have large upfront costs but benefits that add up over the years |
| why do we need infrastructure? | demand on infrastructure rises along with economic growth and growing population/potentially high multiplier effects from investment projects, increasing AD and jobs/lack may discourage FDI/increases the capital stock and productive potential |
| FDI | foreign direct investment |
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