Macroeconomics by Felipe Larrain B

Author:Felipe Larrain B. [B., Felipe Larrain]
Language: eng
Format: epub
Published: 2020-02-21T00:00:00+00:00

8

Productive Investment

This chapter analyzes the main characteristics of investment (which can be thought of as the accumulation of capital) and the factors that determine it. Investment decisions deserve to be studied for several important reasons. First, adding the study of investment to the analysis of consumption proposed in the previous chapter will allow us to better understand how production is distributed in each period between its current use (consumption) and its future use (investment to increase future consumption). Second, fluctuations in firms’ investment play a central role in determining the level of output and employment in the short run; thus, investment has a crucial role in the business cycle. Finally, as discussed in chapter 3, investment contributes significantly to long-term economic growth. In figure 5, it can be clearly seen that, on average, the countries that invest more, grow faster.

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