Evaluate the effectiveness of an increase in investment expenditure on the performance of an economy.

Expert Solution

Solution

GDP (or) gross domestic product is the total value of goods produced and services rendered in an economy.It is an indication of the level of the economy.The more it the better the economy is

GDP = C+I +G+ (X-M) where C= Private consumption ; I = Gross Investment; G = Government Spending ; (X-M) = Exports - Imports

So the increase in investment expenditure component will increase the GDP which is an indicator of the economy.

Example: Increased investment means companies increase their capital expenditure will leads to increase in their efficiency of producing the existing goods and / or lead them to produce more complex and higher diverse / variety of goods which results in higher value of the output.This helps in increasing the GDP which the economy is improving / performing.

So higher the investment the more there is a scope for an economy to perform.

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Rahul Sunny answered 1 year ago

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