ECON 102 1st Edition Lecture 23 Outline of Last Lecture 1 The Multiplier An informal introduction 2 The Consumption Function a Slope 3 The Aggregate Consumption Function Outline of Current Lecture I Investment Spending Current Lecture Planned investment spending is the investment spending that businesses plan to undertake during a given period o It depends negatively on Interest Rate Existing production capacity o And positively on Expected future real GDP Interest Rates influence o Investment spending by households on homes Lower interest rates means more spending on home construction o Investment spending by businesses on projects Higher interest rate means projects with higher rate of return will be implemented Existing Production Capacity o Firms undertake investment spending only if capacity is inadequate to meet future sales Growth in future real GDP According to the accelerator principle a higher rate of growth in real GDP leads to higher planned investment spending Inventories Stocks of goods held to satisfy future sales Inventory investment The value of the change in total inventories held in the economy during a given period Unplanned inventory investment occurs when actual sales are more or less than businesses expected leading to unplanned changes in inventories These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute o Rising inventories indicate slowing economy o Falling inventories indicate growing economy Actual investment spending The sum of planned investment spending and unplanned inventory investment
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