Question

1. Research the importance and levels of investment spending in the US.

2. Explain the Interest Rate effect on business borrowing and levels of employment.

3. Collect official data on the Investment level in the US. See Instructions in the important document.

Answer 1

1)In the long run investment spending is important in order to improve the productivity and increase competitiveness in US.When there is no investment in the economyand   there is high level of consumption ,an unbalanced economy is created.An economy is built on the building blocks of investment .Investment is important for economic development and creates employment .It increases GDP of the country and national revenue. Federal investment spending was $530 billion in 2017.United States investment accounted for 20.5%of Nominal GDP IN Dec 2019.

2)When interest rates rise,banks usually charge more for business loans.So businesses will have to use more of their earnings to pay interest on loan . As a result profits will be less and business wil not like to expand their business .Thus growth of business will be hampered.When interest is low businesses can borrow easily.This will increase profit and with low interest loans business can fund growth in business.The Fed adjusts long term interest rate by setting the Federal funds rate and this increases investment spending and increases employment.

3)Federal investment spending was $530 billion in 2017.United States investment accounted for 20.5%of Nominal GDP IN Dec 2019.United States share of Nominal GDP is updated regularly from Mar1947 to Dec 2019 with an average ratio of 22.5%.