Input Demand: The Capital Market and the Investment Decision

Capital ,[object Object],[object Object]

Physical Capital ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Social Capital ,[object Object],[object Object],[object Object],[object Object]

Intangible Capital ,[object Object],[object Object]

Human Capital ,[object Object],[object Object]

Measuring Capital ,[object Object],[object Object]

Investment ,[object Object],[object Object],[object Object]

Private Investment in the U.S. Economy, 1999 ,[object Object],gross investment minus depreciation 7.5 41.7 688.7 Net investment =  10.3  58.3  961.4  depreciation 17.8 100.0 1,650.1 Total gross private investment 4.3 24.5 403.8 Residential structures 0.5 2.6 43.3 Change in inventories 9.9 55.6 917.4 Equipment and software 3.1 17.3 285.6 Nonresidential structures AS A PERCENTAGE OF GDP AS A PERCENTAGE OF TOTAL GROSS INVESTMENT BILLIONS OF CURRENT DOLLARS Private Investment in the U.S. Economy, 1999

The Capital Market ,[object Object]

$1,000 in Savings Becomes $1,000 of Investment

Bond Lending ,[object Object],[object Object]

The Financial Capital Market ,[object Object],[object Object]

Capital Income: Interest and Profit ,[object Object],[object Object]

Financial Capital Markets in Action ,[object Object],[object Object],[object Object],[object Object],[object Object]

Financial Markets Link Household Saving and Investment by Firms

Capital Accumulation and Allocation ,[object Object],[object Object],[object Object]

Forming Expectations ,[object Object],[object Object]

The Demand for New Capital and the Investment Decision ,[object Object],[object Object],[object Object]

Comparing Costs and Expected Return ,[object Object]

Determinants of the Expected Rate of Return ,[object Object],[object Object],[object Object],[object Object]

A Menu of Investment Choices and Expected Rates of Return 5 100,000 G. Employee cafeteria 7 1,000,000 F. Advertising campaign 10 400,000 E. Ten new delivery trucks 12 100,000 D. New automated billing system 15 1,500,000 C. Sales office in another state 20 2,600,000 B. New branch plant 25 400,000 A. New computer network (2) EXPECTED RATE OF RETURN (PERCENT) (1) TOTAL INVESTMENT (DOLLARS) PROJECT Potential Investment Projects and Expected Rates of Return for a Hypothetical Firm, Based on Forecasts of Future Profits Attributable to the Investment

A Menu of Investment Choices and Expected Rates of Return ,[object Object],[object Object]

Investment Demand ,[object Object],[object Object]

The Profit-Maximizing Investment Decision ,[object Object],[object Object],MRP K = P K

Present Value ,[object Object],[object Object]

Input Demand: The Capital Market and the Investment Decision

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Input Demand: The Capital Market and the Investment Decision