Expected Future Real GDP, Production Capacity, and Investment Spending
if investors do expects sales of a particular good to grow they will find its current production capacity insufficient for its future production needs, and they will engage investment to meet those needs.
so firms will undertake more more investment when they expect sales to grow.
- If the firm has enough capacity to produce and meet current production need then even if it expects sales to grow then wont undertake investment, until the expected sales grows to catch up with their capacity to produce it.
- so the higher the current capacity the lower the investment spending.
- One way or the other firms will undertake investment regardless of the production capacity, assuming the expected sales grows.
- even though the production capacity satisfies the need of the expected rise in sales that excess production capacity will be used up, leading firms to resume investment spending
It is a high expected future growth rate of real GDP.
the higher the expected future growth rate of real GDP results in a higher level of planned investment but a lower expected future growth rate will lead to a decrease in planned investment.
they are used to describe investment spending slumps, during periods of low investment
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