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*Business fixed investment: equipment and structures businesses use to produce
*Residential investment: new housing units
*Inventory investment: goods businesses put aside in shortage to regulate
INVESTMENT: firms’ purchase of new plants, equipment, buildings, and additions to inventories
Capital the amount of plant, equipment, and inventories used to produce other goods, is a stock.
Depreciation (also called capital consumptionI is the decrease in the capital stock because of wear and tear and obsolescence.
Gross investment is the total amount of investment.
Net investment is gross investment minus depreciation. Net investment is the flow that is the amount by which the capital stock changes.
DETERMINANTS OF INVESTMENT:
• Revenues (Bevételek): an investment should bring the firm additional revenue.
• Costs: interest rate influences the costs of the investment.
• Consumer demand: the bigger the increase in consumer demand, the more investment will be needed.
Expectation: business expectation about future state of economy
For simplicity, assume two types of firms:
1. Production firms rent the capital they use to produce goods and services.
2. Rental firms own capital, rent it to production firms.
In this context, “investment” is the rental firms’ spending on new capital goods
Effect of Taxes on Investment
Corporate income tax is a tax on corporate profit. An increase in the tax would discourage business investment.
Investment tax credit (A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government) is an incentive (стимул) for businesses to invest. An increase in the tax credit would encourage business investment.
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