Question

Based on your study of Instability of Investment, briefly explain the below with giving example:
1- Variability of expectations
2- Durability
3- Irregularity of innovation
4- Variability of profit

Answer 1

1.Variability of expectations- Producers expectations change easily and quickly. Business confidence may be influenced by a multitude of factors. This feeds directly into profit expectations thus causing variability into investment expenditure.In present scenario many companies have switched to manufacture of hand sanitizers, face masks and ventilators as due to Covid 19 these things are in huge demand as compared to other products.

2. Durability- With capital goods be durable spending can be postponed or not. Firms can choose to replace or fix older equipment and buildings. This is unpredictable . Firm may decide to purchase a new machinery or it may decide to repair the current machinery and use that money saved elsewhere.

3. Irregularity of innovation- We cannot predict new inventions or technology; huge increases in productivity cause major swings in investment. With the coming of smart phones , use of calculators have been reduced considerably as smart phones serve the purpose. Also many functions of laptops are being provided by smartphones thus making them indispensable.

4. Variability of profits- Profits affect both the incentive and ability to invest and profits vary considerably from year to year. Due to Covid 19 the profits of many firms will be negatively affected. Now many of the forecastrfld projects if firm's will either have yobbe postponed or even dumped due to shortage of funds.Wind projects in the US are expected to face delays due to lockdowns and supply chain disruptions. The tax subsidies provided to these projects is expected to be endangered due to the delays.