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    Exercise 5

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    Kenon Joseph Hinanay
    Investment is essential to the economy as it provides capital for companies to operate efficiently. Investment increases a company's capital, while output refers to the products a company produces. Savings are determined by factors like income level, income distribution, consumption motivations, wealth, habits, population growth, objective/institutional influences, and interest rates. The two main determinants of investment are the expected rate of profit and the interest rate, as these influence how much profit an investor expects to gain from a particular investment.

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    Exercise 5

    Uploaded by

    Kenon Joseph Hinanay
    33 views3 pages
    Investment is essential to the economy as it provides capital for companies to operate efficiently. Investment increases a company's capital, while output refers to the products a company produces. Savings are determined by factors like income level, income distribution, consumption motivations, wealth, habits, population growth, objective/institutional influences, and interest rates. The two main determinants of investment are the expected rate of profit and the interest rate, as these influence how much profit an investor expects to gain from a particular investment.

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    Investment is essential to the economy as it provides capital for companies to operate efficiently. Investment increases a company's capital, while output refers to the products a company produces. Savings are determined by factors like income level, income distribution, consumption motivations, wealth, habits, population growth, objective/institutional influences, and interest rates. The two main determinants of investment are the expected rate of profit and the interest rate, as these influence how much profit an investor expects to gain from a particular investment.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    33 views3 pages

    Exercise 5

    Uploaded by

    Kenon Joseph Hinanay
    Investment is essential to the economy as it provides capital for companies to operate efficiently. Investment increases a company's capital, while output refers to the products a company produces. Savings are determined by factors like income level, income distribution, consumption motivations, wealth, habits, population growth, objective/institutional influences, and interest rates. The two main determinants of investment are the expected rate of profit and the interest rate, as these influence how much profit an investor expects to gain from a particular investment.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Part II: Essay

    Direction: using your own words, discuss the following topics by citing concrete
    example.

    1. Why is investment essential to the economy.


    Investment is essential to the economy because it serves as one of the
    source of capital in the economy. For example a company cannot stand by itself
    without investment from other business man because the company need adequate
    money to operate efficiently.

    2. Differentiate investment and multiplier


    Investment is the process of increasing the capital of a particular business
    while multiplier is the factor by which the return deriving from expenditure
    exceeds the expenditure itself.

    3. Differentiate investment and output.


    Investment is one of the source of capital while output is the product of a
    company. For example money from other businessman who invest in a company
    is investment while the things made by the company is the output

    4. Determinants of savings
    There 9 determinants of savings

    1. The level of income


    Saving is basically a function of income that’s why savings increases with
    income.

    2. Income distribution
    If there is a greater degree of inequality of income among the people, that
    aggregate the savings rate, would tend to be high, as the richer section of the
    community has high propensity to save.

    3. Consumption motivatios.
    Savings is the residual part of income left after consumption. Thus , to
    know the factors affecting saving, we must know the factors of consumption.

    4. Wealth
    Holding of wealth or liquid assets by a person also affects his consumption
    decisions.

    5. Habit
    Habit is a major determinant of consumption. We tend to spend more on
    our habits which affects our savings

    6. Population
    A high growth of population has an adverse effect on the per capita
    income which causes an adverse effect on the saving-income ratio.

    7. Objective and institutional factors


    The number of objective factors of institutions affects the capacity and
    willingness to save the people at large.

    8. Subjective motivations for savings


    People tends to save more when there are strong subjective factors which
    motivate them to save for example: motivation to improve the standard of living.

    9 Rate of interest
    According to the classical economists, saving is the direct function of the
    rate of interest.

    https://academic.oup.com/wber/article-abstract/3/3/379/1687716?
    redirectedFrom=fulltext

    5. Investment demand determinants


    There are two determinants of investments. The first is the expected rate
    of profit by which its is the expectation of the investor on how much he will gain
    in the investment. The second determinant is the rate of interest. The interest of
    the investment is the biggest factor of why an investor is interested in investing to
    a particular company, it hugely has something to do with the profit.

    https://2012books.lardbucket.org/books/macroeconomics-principles-v2.0/s17-02-
    determinants-of-investment.html

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