Macroeconomics Investment Function

3. INVESTMENT: A
DETERMINANT OF
INCOME

4. INVESTMENT EXPENDITURE IS
A CAPITAL SPENDING MAINLY
DERIVED NOT FROM CURRENT
INCOME AND CONSUMPTION
BUT FROM ACCUMULATED
SAVINGS AND OTHER
SOURCES.

6. HOW DOES INVESTMENT
SPENDING DETERMINE
INCOME?

8. INVESTMENT: A
DETERMINANT OF
INCOME

9. INVESTMENT MULTIPLIER
OUR HYPOTHETICAL EXAMPLE SHOWS THAT
EQUILIBRIUM INCOME IS AT ₱500 BILLION
ASSUMING THAT CONSUMPTION IS ITS ONLY
COMPONENT BECAUSE HOUSEHOLDS ARE
THE ONLY FACTOR CONTRIBUTORS.

10. INVESTMENT
MULTIPLIER
TRACING THE SIMPLE
GENERATION
PROCESS,
INVESTMENT
EXPENDITURE IS
PRODUCTION
INCOME, WHICH
COMPLETELY FLOWS
TO THE
HOUSEHOLDS.

11. THE PROCESS OF HOW INCOME IS GENERATED
FROM INVESTMENT

12. THE FOLLOWING EQUATIONS ILLUSTRATE HOW THE INVESTMENT
FACTOR IS INCORPORATED IN THE INCOME FUNCTION WITH THE
MULTIPLIER PROCESS:

13. INVESTMENT
AND
OUTPUT

14. BASIC
CONCEPTS

15. IN GENERAL, BUSINESS AND
HOUSEHOLD INVESTMENT INCREASE
THE ECONOMY’S STOCK OF CAPITAL
AND TOTAL OUTPUT CONSIDERING
DEPRECIATION HAS THE OPPOSITE
EFFECT AS IT REPRESENTS CAPITAL
CONSUMPTION.

16. INVESTMENT
AND THE STOCK
ADJUSTMENT
PROCESS

17. DESPITE THE
INVESTMENT-
PRODUCTION TIME
LAG THAT WE HAVE
NOTED, SUSTAINED
INVESTMENT
EXPANSION CAN
DETERMINE GROWTH
IN THE CAPITAL
STOCK.
INVESTMENT AND
THE STOCK
ADJUSTMENT
PROCESS

18. TAKE NOTE!
INVESTMENT INCREASES WHILE
DEPRECIATION DECREASES THE
CURRENT CAPITAL STOCK BUT IN
TURN, IT IS DIRECTLY ASSOCIATED TO
OUTPUT.

19. THE FOLLOWING EQUATIONS ILLUSTRATE THIS CONCEPT:

20. SAVINGS AS A
SOURCE OF
INVESTMENT

21. SAVINGS
CONCEPTS

22. SAVINGS IS THE UNSPENT
PORTION OF AN INDIVIDUAL’S
PERSONAL SAVING.

23. IN MACROECONOMICS ANALYSIS, SAVINGS IS
THE PROPORTION OF CURRENT NATIONAL
INCOME THAT IS NOT SPENT ON CURRENT
CONSUMPTION.
TAKE NOTE!

24. SAVINGS OF THE COMPANY CAN BE SIMPLY EXPRESSED
AS FOLLOWS:
S= Y - C
S = SAVING
Y = INCOME
C = CONSUMPTION

25. SAVING-INVESTMENT EQUILIBRIUM
Y = C + I
Y – C = I
S = I
ASSUMING THAT INCOME IS NOW FULLY
GENERATED, (S = I) WILL INDICATE A COMPLETION
OF THE PROCESS OF TRANSFORMING THE
SAVINGS OUTFLOW INTO INVESTMENT INFLOW.

26. DETERMINANTS
OF SAVINGS

27. PART OF THE NATIONAL INCOME THAT
IS AVAILABLE FOR SPENDING GOES
TO SAVINGS, WHICH IS INVERSELY
RELATED TO THE CORRESPONDING
LEVEL OF EXPENDITURE.

28. PHILIPPINE STATISTICS SHOW THAT THE
AVERAGE ANNUAL FAMILY INCOME IN 2003
WAS P148,616 WHILE THE AVERAGE
ANNUAL EXPENDITURE FOR THE SAME
PERIOD WAS P124,377.
EXAMPLE!

29. INTEREST RATE ON SAVINGS ACCOUNT
MAY ONLY HAVE MINIMAL EFFECT ON
THE LEVEL OF SAVINGS OF
HOUSEHOLDS AND BUSINESSES.
TAKE NOTE!

30. INVESTMENT
DEMAND
DETERMINANTS

31. INTEREST RATE.
01
ACCELERATION
PRINCIPLE
02
PROFIT
04
EXPECTATIONS
05
INNOVATIONS
03
INVESTMENT DEMAND DETERMINANTS

32. INTEREST
RATE
INTEREST RATE IS
THE PARTICULAR
AMOUNT WHICH A
HOUSEHOLD OR
BUSINESS IS
REQUIRED TO PAY
TO A LENDER FOR
BORROWING.

33. THE
ACCELERATION
PRINCIPLE
THE PRINCIPLE
STATES THAT THE
LEVEL OF
INVESTMENT IS A
FUNCTION OF
DESIRED CHANGES
IN OUTPUT.

34. INNOVATION
ANOTHER LONG-
TERM FACTOR THAT
CAN SHIFT THE
INVESTMENT
DEMAND CURVE IS
INNOVATION.

35. “INTRODUCTION OF AN UNFAMILIAR PRODUCT AND
UNTESTED TECHNOLOGY; OPENING A COUNTRY’S
PRODUCT TO MARKETS AND SOURCES OF RAW
MATERIALS NOT PREVIOUSLY ENCOUNTERED; AND
THE SETTING UP OF A NEW ORGANIZATION IN ANY
INDUSTRY”
TAKE NOTE!
-JOSEPH SCHUMPETER

36. PROFIT
PROFIT IS THE BASIC
REASON WHY A
BUSINESS INVEST
AND, THEREFORE,
PROFIT TENDS
INFLUENCE BUSINESS
INVESTMENTS IN A
LONG PERIOD OF
TIME.

37. EXPECTATION
A BUSINESSMAN
GENERALLY INVEST
THROUGH
EXPACTATION IN A
CERTAIN LEVEL OF
PROFIT GIVEN A
CERTAIN INFLUENCE
OF THE BUSINESS
ENVIRONMENT.

38. THANKS!

39. QUIZ TIME!

40. QUIZ TIME!
WHY DOES EVERY ECONOMY HAVE DESPERATE NEED
OF INVESTMENT? AND WHY?
HOW DOES INVESTMENT SAVE EVERY ECONOMY?
EXPLAIN COMPREHENSIVELY
DO INTEREST RATES SIGNIFICANTLY AFFECT
INVESTMENT? EXPLAIN.