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

Solutions

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.

Hope this solution helps!! Please comment in case of further queries !! Please give a " Thumbs Up" rating for this solution !!

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

What is the impact of military expenditure on the economy? Is it an investment and what...

What is the impact of military expenditure on the economy? Is it an investment and what does it contributes to the welfare of the nation?

Suppose that for a particular economy and period, investment was equal to 100, government expenditure was...

Suppose that for a particular economy and period, investment was equal to 100, government expenditure was equal to 75, net taxes were fixed at 100, and consumption (C) was given by the consumption function C = 25 + 0.8YD where YD is disposable income and Y is GDP. a. What is the level of equilibrium income (Y). b. What is the value of the government expenditure multiplier? Of the tax multiplier? c. Suppose that investment declined by 40 units to...

Consider the aggregate expenditure, fixed price model. If the economy just had a strong increase in...

Consider the aggregate expenditure, fixed price model. If the economy just had a strong increase in production, what can we say was the situation with respect to inventories or investment or wages in the previous period? Select one: a. Firms were increasing production due to an unexpected increase in inventories. b. Firms were increasing production due to an unexpected decrease in inventories. c. Firms were increasing production due to an unexpected increase in investment. d. Firms were increasing production due...

Scenario: In a closed economy without a government, the consumption expenditure equals $5,000 and the investment...

Scenario: In a closed economy without a government, the consumption expenditure equals $5,000 and the investment expenditure equals $2,000. Refer to the scenario above. If the population of the economy is 200, the per capita national income is ________. Group of answer choices $35 $17 $50 $10 A hypothesis states that religious teachings, family ties, and/or social norms are the causes of economic prosperity. According to this hypothesis, ________. geography is a fundamental cause of prosperity culture is a proximate...

Problem 4 Consider the following economy: Consumption Expenditure 446,832 million Planned Investment Expenditure 346,877 million Government...

Problem 4 Consider the following economy: Consumption Expenditure 446,832 million Planned Investment Expenditure 346,877 million Government Expenditure 446,832 million Exports 402,443 million Imports 388,374 million Marginal Propensity to Save 0.3 Marginal Tax Rate 0.32 Autonomous Taxes 301,240 million Marginal Propensity to Import (nx) 0.04 (e) Calculate the marginal leakage rate. (0.5 mark) (f) Assume that the natural rate of output for this economy is estimated as $1,200,000 million. (i) Is this economy facing a recessionary or inflationary gap? (0.5 mark) (ii) Illustrate...

1. Discuss how return on investment and residual income are used to evaluate investment center performance...

1. Discuss how return on investment and residual income are used to evaluate investment center performance 2. Compare and contrast capital budgets from operating budgets

analysis the effect of an increase in initial investment on the real output of an economy?...

analysis the effect of an increase in initial investment on the real output of an economy? is there any role of interaction between multiplier effect and accelerator effect in this analysis? explain your answer pleas.

. The trade unions raise wages and increase employment in the overall economy. Evaluate this statement...

. The trade unions raise wages and increase employment in the overall economy. Evaluate this statement if it is true, false, or uncertain.

Suppose that American firms become more optimistic and decide to increase investment expenditure today in new...

Suppose that American firms become more optimistic and decide to increase investment expenditure today in new factories and office space. a. How will this increase in investment affect output, interest rates, and the current account? b. Now repeat part (a), assuming that domestic investment is very responsive to the interest rate so the U.S. firms will cancel most of their new investment plans if the interest rate rises. How will this affect the answer you gave previously?

Suppose an economy experiences a decrease in investment expenditure. a) Show graphically using AD-AS model how...

Suppose an economy experiences a decrease in investment expenditure. a) Show graphically using AD-AS model how the price level and output are affected in the short-run. b) Can the government use fiscal policy to offset the effects on price level and output, explain?

Subjects